2017 Elders Annual Report
Elders Limited ABN 34 004 336 636
Contents
Chairman’s Remarks 4 CEO’s Report 6 Year in Brief 10 A Year of Progress 11 Elders Gives Back 12 Operating and Financial Review 14 Material Business Risks 22 Review of Operations 26 Outlook 34 Digital and Technical Services Snapshot 36 Elders Expands National Footprint 38 Board of Directors 40 Executive Management Remarks 44 Women in Pink 50 Directors’ Report 52 Remuneration Report 60 Annual Financial Report 78 Shareholder Information 130 Company Directory 131
Elders is shaping up to drive growth and innovation towards 2020. One Elders Values
02 One Elders Values
Integrity Behaving with honesty and integrity in every interaction
Accountability Being accountable for results
Teamwork Using the power of the team, and respecting the contribution of every person
Customer Focus Growing valuable customer relationships, and showing pride and passion in our organisation
Innovation Delivering innovation and continuous improvement
03 2017 Annual Report — Elders
Chairman’s Remarks
Financial results The Company has recorded another year of strong financial progress, with underlying net profit after tax increasing by $16.5 million, from $41.2 million last year to $57.7 million in FY17. Underlying earnings before interest and tax (EBIT) of $70.4 million was up $14.3 million on last year. Balanced growth across the portfolio – including Retail Products, Agency Services, Real Estate Services, Financial Services, and Feed and Processing Services – contributed to the solid results which are discussed in greater detail in the Chief Executive Officer’s report. Strategic direction The strategic direction or “Eight Point Plan” has been the foundation of Elders’ recent success and positioned the business for ongoing and consistent quality growth. Elders continues to be disciplined in how it will grow in the future. There are important agricultural areas in Australia where Elders is under-represented. These areas are prioritised and It is extremely satisfying for the Board and management to thoroughly evaluated to determine how we should approach achieve our earnings before interest and tax ($60 million) and these opportunities. Several investments are listed below that return on capital (20%) goals that were established with the are a result of this analysis and work continues to profitably Eight Point Plan in 2014. This journey commenced in 2013 expand Elders’ footprint. with the decision of the Elders Board to return Elders to being We continue to assess our current operations to ensuring we invest a pure play agribusiness, with our aim to “turn the Company in only those products, services and geographies that are capable around” and regain the confidence of customers, investors of generating positive and sustainable returns. and employees. In FY16 we made the decision to divest the Live Export business. This annual report will give you insights on how this has been Completion of the sale of that business during the year marked achieved and hopefully the confidence to believe that Elders a successful exit for Elders from Live Export logistics. will continue to grow and strengthen in the future. This means we are no longer competing with live cattle exporters Safety in terms of shipping, logistics and supply chains, and this has The success of a Company, such as Elders, is very much facilitated an increase in our ability to supply cattle to exporters dependent on the health and wellbeing of its employees. as we are now seen as a partner. We remain committed to the We prioritise the safety of our employees and recognise that live export industry and our many clients servicing this industry their welfare must be a key consideration in all that we do. with livestock. In 2017, we had six lost time injuries (LTIs), which is another Elders is committed to continuing to expand and improve our solid step in our journey to achieving our target of zero LTIs. products and services for our customers. We believe technology In FY14, the year before the Eight Point Plan commenced, LTIs that provides productivity improvements to Australia’s growers stood, on a like for like basis, at 14. As a result we consider we and producers is key to ongoing profitability and sustainability. are on the right track with our safety strategy. Our plan is to offer access to new technology through improved A safe and healthy Elders is in the interests of everyone: our digital platforms and through our partnerships with global and employees and their families, our clients and customers, and Australian research providers. We believe continuous improvement our regional communities. in productivity is key for Australia to successfully compete globally and meet growing demand for food and fibre in Asia.
04 Chairman's Remarks
Investment Corporate governance In 2017 Elders made several important investments to support The Board strongly believes that the Eight Point Plan. a culture of compliance, and a commitment to applying the One Elders For example, in Bunbury Western Australia, Elders purchased Values by our employees in their day- Southern Districts Estate Agency which is one of the largest to-day business activities, is essential and most diversified real estate groups in the south-west of in ensuring the long-term success of Western Australia. our strategic objectives. To this end, In a fresh approach to the Real Estate offering, a team of water we continue to uphold high standards brokers has been recruited to establish a capital-light water of corporate governance, including broking business. our continuous disclosure obligations. The Company’s corporate governance We continued to grow our specialised horticultural footprint framework and practices, which are fully with the acquisition of New South Wales horticultural service compliant with the third edition of the provider and inputs retailer, Ace Ohlsson. An established leader ASX Corporate Governance Council’s in the horticulture industry, Ace Ohlsson is a good strategic, Principles and Recommendations, are cultural and geographical fit for Elders. detailed in the Corporate Governance Another important investment in 2017 was the acquisition Statement (CGS) available on our of 30% of the livestock financing company StockCo. The website at elders.com.au. investment has created more financing options for our The CGS also outlines our policy, customers to acquire livestock and added another important objectives, and progress against service to our Financial Services business. those objectives, for achieving gender diversity in the workplace, which Balance sheet and finance remains a priority. A concerted effort to One of the most significant accomplishments in 2017 was the achieve gender balance in the workforce simplification of the Elders balance sheet. In April 2017, Elders is progressing and steadily making realised and cancelled its Hybrid securities which were issued inroads into the desired increase in in 2006 with a face value of $150 million. Realisation of the representation of women in all facets Hybrids enables Elders to pay a dividend for 2017, without the of the business, from the Board to the need to first pay distributions on the hybrids. This is, obviously, branches. of great advantage to you, our shareholders. The Board remains committed to I am pleased to report that on the back of the Eight Point ensuring Elders stays on its course of Plan, with three years of strong business results, normalised growth and that it continues to deliver banking arrangements, reduced debt levels and improved results in accordance with shareholder cash generation, a final dividend – the first since 2008 – will expectations. be forthcoming in December 2017, together with a special dividend. On behalf of the directors, I take this opportunity to extend the Board Board’s gratitude to Mark Allison, Recently, we announced the appointment of a new non- his management team and all Elders’ executive director, Ms Diana Eilert, who will stand for election employees who continue to represent at Elders’ 2017 Annual General Meeting (AGM). We are Elders with great professionalism, pride particularly excited about the deep digital experience that and enthusiasm. Diana brings to Elders as part of our commitment to vastly improving our digital offering to our clients. Non-executive director, Mr James Jackson, announced his plans to retire and therefore will not be seeking re-election at the 2017 AGM. On behalf of the Board, I would like to express our thanks and appreciation for the valuable contributions made to the Company by James. Hutch Ranck Chairman
05 2017 Annual Report — Elders
CEO’s Report
Although straightforward in concept, the Eight Point Plan is essential in articulating our vision and ensuring our operations adhere to the strategic roadmap we have put in place. The Plan’s pillars are: values, performance and brand; retail products; agency services; real estate services; financial services; digital and technical services; feed and processing services; and cost, capital and efficiency. Within each of those eight pillars, we are overwhelmingly on track in meeting and delivering on intended targets. Commitment to the Plan means we are already generating positive results and outcomes on all manner of fronts, and our valued employees, clients, customers and shareholders are the beneficiaries. Their loyalty to the Elders brand and their belief in our values are truly appreciated and acknowledged. In terms of the Plan’s strategic financial intent for FY17, the target set in 2014 was $60 million in earnings before interest and tax (EBIT) and a 20 percent return on capital Commitment to our (ROC) through provision of value-creating products and strategic plan and a services in Australia and overseas. I am pleased to report that those targets were eclipsed. resolve to realise our We achieved $70.4m EBIT and a 26.8% ROC. objective of continuous, Also most satisfying, from a business perspective, is that for the first time since 2008 we will in December 2017 pay solid, high quality growth fully franked dividends, marking the realisation of another underpinned Elders’ goal set out with the formation of the Eight Point Plan. The Plan has served to position Elders as a most robust, achievements in 2016-17. resilient, innovative, efficient and dynamic business. Our goal is to build a business that can withstand seasonal, Pivotal to the business’ market demand and commodity price vagaries and the strategic direction is the impacts of a variable climate and production constraints. Our focus remains firmly fixed on factors within our Eight Point Plan, which control and extracting the positives out of what others was introduced in 2014 may see as negative forces and circumstances. Essentially, we are working to insulate the business and will continue to from the agriculture cycle, while remaining focused solely on agriculture. Non-cyclical, high quality returns guide our growth and are our objective and we’ve achieved that to date with development through the implementation of the Eight Point Plan. Following are some of the positive outcomes and to 2020. developments over the past year I wish to highlight.
06 Chairman's Remarks
Operational performance Safety performance Continuing on from a strong financial We remain steadfast in our commitment to continual performance the previous year, FY17 improvement in terms of the safety, health and wellbeing of was a period of further underlying profit our employees and our broader stakeholders. In 2017, our lost growth. Underlying net profit after tax time injuries (LTIs) were six which is a notable achievement in improved $16.5 million on the prior our quest for zero LTIs and a considerable improvement on corresponding period to $57.7 million. LTIs of 34 in 2013. Underlying EBIT of $70.4 million – up We also maintain a spotlight on the issue of mental health in $14.3 million on last year – resulted rural areas, as emphasised through our ongoing partnership largely from improved profitability with the North Queensland Cowboys National Rugby League across the product range. team – an initiative aimed at breaking down the stigma The Retail business benefited from attached to mental health conditions through improved improved summer cropping conditions awareness, understanding and community discussion. and geographical expansion, posting a $7.8 million margin improvement, while Our people Agency Services’ margin increased by In 2017, Elders employed 1977 full time equivalent (FTE) $11 million on the back of strong cattle persons, compared with 1893 in FY16. and sheep prices and footprint growth. A key objective under the Eight Point Plan is to increase the Real Estate margin improved from focus on employee behaviour reflecting theOne Elders Values $29.2 million to $31.9 million with as part of an overall thrust to build a high performance culture. increased farm land and residential To that end, our overall engagement and enablement levels, as property turnover. Financial Services measured through the annual employee effectiveness survey, earnings were boosted by StockCo and increased on last year and continue to sit above levels for other Elders Insurance acquisitions, rising from Australian organisations at 74% and 76% respectively. $26.2 million in FY16 to $35.1 million this reporting period. While we applaud that achievement within our business, more broadly it has been formally acknowledged nationally and Increased utilisation at Killara feedlot internationally through the Korn Ferry Employee Engagement contributed to Feed and Processing Awards, which have been developed to publicly recognise Services recording improved margins organisations that have built superior levels of engagement. of $1 million. Elders was one of only two Australian companies to receive an award in 2017, recipients of which came from 21 countries Higher costs ($269 million compared around the globe. Korn Ferry research confirms employee with $252.1 million in the previous engagement is a consistent leading indicator of organisational corresponding period) were the result health and sustainable performance – a philosophy we share of Eight Point Plan initiatives – including here at Elders. acquisitions, footprint growth and variablised increased incentives. More than 97% of employees completed a mid-year performance review in 2017, reaffirming performance Efficiency and growth objectives. Elders recognises outstanding performance Since introducing the Eight Point Plan through the likes of the One Elders Awards and through we have constantly reviewed our targets, incentive initiatives which encourage and reward high objectives and business strategy to performance and achievement. ensure we remain efficient and well Elders continues to invest in upskilling and developing our positioned to generate growth and people. We had 18 future and senior leaders participating in revenue. Through that review process our Leadership Development Programs in 2016-17, nine people we moved to replace one of the original were inducted into the Stock and Station Agency Traineeship eight pillars – the live export business – Program, and the Agronomy Graduate Program welcomed a with technical and digital services. further two graduates to its ranks. Exiting from the non-core competency Attracting and maintaining a diverse workforce is an ongoing Live Export business (while maintaining commitment and in this regard a special emphasis is placed our important involvement in the trade on increasing the proportion of women holding management through the sourcing of livestock) is positions. We still have some way to go but we have set some not only driving cost efficiencies but it measureable objectives, including maintaining the pipeline of has allowed us to invest in areas, such female leaders above 25% – that figure currently sits at 28% as technical and digital services, which which is very encouraging. are much more aligned with our growth agenda.
07 2017 Annual Report — Elders
Our clients and customers Our communities As mentioned earlier, Elders has increased its focus in the Elders takes considerable pride in technical and digital space, primarily for the benefit of our supporting, nurturing and re-investing clients. We are rapidly developing our digital services offering in our rural and regional communities. as farmers increasingly seek business and information services We contribute to the fostering of rural through online platforms. and regional prosperity and wellbeing through a number of ways, including During the year we updated the Elders Weather app and the Elders Give It, a formal partnership website to improve user experience. Feedback and input program with three key not-for-profit from the branch network, as well as the Elders Insiders online organisations – the Royal Flying Doctor community of around 1500 employees, clients and suppliers, Service, Landcare and beyondblue. enables our digital team to gauge the effectiveness of these popular digital tools in real time so adjustments can rapidly The program is designed to funnel funds be made if necessary. from payroll donations and fundraising events into three organisations which Elders Insiders also provides the business with client have significant impacts on rural and satisfaction insights. The latest survey returned strong remote Australia. Each partner has positive results and an improvement in satisfaction year on been chosen carefully based on their year. When asked the question, “What do you like most about relationship with the communities in Elders?”, it was our people that drew the strongest response, which Elders’ employees and clients live with respondents citing employees’ “friendly, personalised, and work. The common factor between professional, local, helpful approach” as being key attributes, our partners of choice is that they all along with their knowledge and high levels of service. play an active role in supporting rural In an exciting development, the groundwork was undertaken communities. Not only are these areas in FY17 for the creation of a revolutionary new offering for our where we do business, it’s where our clients – Thomas Elder Consulting (TEC). people live, it’s where their friends are, where their families are. Ensuring these TEC will be a premium agronomic fee-for-service business that locations have long-term support is will operate as an adjunct to the Elders branch retail agronomy important to Elders which firmly has offer. Through TEC, we will provide unrivalled technical its roots in rural Australia. excellence for our clients, as well as the broader industry and our major multinational research and development partners. As previously mentioned, we continue to support the cause of rural mental health This development will no doubt contribute to Elders remaining awareness through our partnership with at the forefront of agricultural innovation. the North Queensland Cowboys NRL On the livestock front, it is most satisfying to see the continuing club. Other key regional sponsorship increase of cattle and sheep sales on behalf of our clients agreements include that of the New through AuctionsPlus. This year, a total of 731,000 sheep South Wales Country Eagles. Many of (578,000 in FY16) and 104,000 head of cattle (93,000 in FY16) our employees, clients and their children were sold via this cost-efficient online trading system. are involved in local rugby, so with the Eagles playing their home games in rural areas, it’s a great opportunity for Elders and our clients to get involved with a well-respected sporting organisation.
08 Chairman's Remarks
Elders’ branches continue to support Closing remarks a wide range of local initiatives and I am encouraged and excited by what we have achieved over charities, and many of our employees the past year. Our platform for growth and evolution, shaped volunteer their time and are involved by the Eight Point Plan, is firmly entrenched and we are well in community service activities. At a placed to continue to make great strides and financial gains national level, Elders was recently the and to provide value to our shareholders. Major Partner for the 25th anniversary celebration of The Australian Rural We anticipate another year of progress and innovation Leadership Foundation, which to elevate the business even further. In FY18 we will be supports what we see as the essential partnering with university researchers, international development of leaders in rural, regional suppliers and government agencies, with a view to improving and remote Australia. Australian agricultural research, development and extension and ultimately farm productivity and profitability. The Beyond our shores, we are also involved collaborative projects will position Elders at the very heart of in supporting those communities in agricultural collaboration in Australia, expediting the delivery which we operate. In Indonesia, for and adoption of new technologies and farming practices. example, we donate 20 kilograms of beef every month to the Mama Sayang With the roll-out of such initiatives, we at Elders are certainly Orphanage which cares for more than looking forward to the year ahead. 100 children. Located on the outskirts On behalf of the dedicated and hard-working Elders team, of Jakarta, the orphanage is providing I thank our shareholders and all our stakeholders for their children with a sound education and ongoing support and commitment. guiding them through to university and into meaningful careers. Over recent years, we have donated cows and calves to the local Indonesian community and provided veterinary services, we have supplied building materials for the construction and renovation of mosques, halls, school Mark Allison facilities and roads, and have donated Managing Director sporting equipment, cattle feed and manure. We have also worked with local government to improve the environmental impact of the waste water treatment plant associated with the abattoir. We prioritise engagement with local communities to maintain healthy relationships and a welcome presence, and we continue to seek employees from the same villages that we support and in which we operate.
09 2017 Annual Report — Elders
Year in Brief
Year ended 30 September 2017 2016 Continuing sales revenue $m 1,603.1 1,519.3 Underlying EBITDA $m 74.6 59.8 Underlying EBIT $m 70.4 56.1 Underlying finance costs $m 7.3 9.3 Reported profit after tax $m 116.0 51.6 Underlying profit after tax $m 57.7 41.2
Net debt $m 95.3 86.1 Shareholders’ equity $m 257.7 186.5
Operating cash flow $m 81.6 48.7
Reported earnings per share (basic) cents 101.9 56.9 Reported earnings per share (diluted) cents 98.9 48.7 Underlying earnings per share (basic) cents 50.7 45.4 Underlying earnings per share (diluted) cents 49.2 38.9 Final dividend declared (fully franked) cents 7.5 - Additional special dividend declared (fully franked) cents 7.5 - Interim dividend declared cents - -
Key ratios EBIT margin (EBIT to sales) % 4.4 3.7 Return on capital % 26.8 28.1 Leverage (average net debt to underlying EBITDA) times 1.8 2.2 Interest cover (EBITDA to net interest) times 10.3 6.4 Gearing (average net debt to closing equity) % 52.3 72.3
Key share data ELD share price $ 4.85 3.87 Market capitalisation $m 552.2 440.6 Number of ordinary shareholders 13,824 15,759 Ordinary shares on issue 113,859,440 113,859,440
10 A Year of Progress
A Year of Progress
Safety Performance 52% decrease in days lost for FY17
Continued emphasis on employee and community safety health and wellbeing
Operational Performance $70.4m underlying EBIT, up $14.3m on last year
Underlying ROC at 26.8%, down from 28.1% at September 2016
Leverage ratio improved to 1.8
Interest cover ratio improved from 6.4 to 10.3
Commenced half yearly dividends, with final fully franked dividend declared at 7.5c per share Additional special fully franked dividend declared at 7.5c per share
Key Relationships Strengthened relationships in aligned financial service providers
Continued to work with retail key suppliers, including improved position in WA fertiliser market Expanded digital client offerings
Formalised rural charitable partnerships through launch of Elders Give It
Efficiency and Growth Real Estate footprint expansion in Western Australia
Strategic acquisition of Ace Ohlsson to enhance horticulture capability
Drove organic growth through improving sales force performance and attracting high performers Further 10% acquisition of Elders Insurance and 30% of StockCo
Cancellation of all Hybrids resulting in a simplified capital structure
11 Elders Gives Back Elders supports charity initiatives at a national level, but even more so at a local level in the communities in which we operate. At our 440 points of presence throughout Australia, each with unique requirements, our teams work closely to provide support to these communities.
12 Image courtesy of the Royal Flying Doctor Service Elders Gives Back
Elders Give It “Support those who support you” To further support our communities, in FY17 Elders strengthened partnerships with three key not-for-profit organisations to create the employee contribution program, Elders Give It. Those three organisations, Royal Flying Doctor Services (RFDS), Landcare and beyondblue, are a natural fit for Elders with strong ties to rural Australia. The program allows employees to donate a nominated pre- tax amount to one or more of the chosen partners, or support one or all of the charities through raising awareness within the community and hosting events. Elders General Manager People, Innovation and Brand, Karen Ross says, “The program aligns well with Elders’ values and our community vision, and has been designed with the Landcare ability to grow.” For more than 25 years, Landcare Australia has supported the “We want the local recognition of the pink shirt to accompany protection, restoration and sustained the productivity and value a reputation for operating with integrity and being a part of the of Australia’s natural environment. Landcare’s national resource local community; a company going above and beyond to add management program aligns the practice of environmental value to our clients.” management with land productivity. “Our clients are the lifeline of our business, so it is always our To support National Landcare week during September, a group focus to assist them in whatever capacity we can – whether of head office employees volunteered in the Adelaide Hills that be in the sale yards, the paddock, the office or through collecting local seed, weeding and planting, to improve the local community initiatives.” habitat of the Southern Brown Bandicoot, as well as learning about the important role that Landcare groups across the country play in conserving and promoting environmental Royal Flying Doctor Service (RFDS) sustainability. The RFDS runs 100 flights a day, with 80% of these trips providing primary care to people in remote communities who would otherwise travel hours for basic health care. The other 20% are emergency service flights, transporting critically injured and ill patients from remote locations to large hospitals. Every dollar donated through Elders Give It to the RFDS helps to keep this lifesaving assistance in the air. A number of Elders branches held community events in support of the RFDS, including Elders Port Lincoln and surrounding Eyre Peninsula branches who made a contribution of $25,000 alone. The relationship with the RFDS was further increased with the announcement of Elders becoming a Major Partner of the not-for-profit organisation, providing extensive support for the new flying intensive care unit, as well as to a range of initiatives throughout the coming financial year.
beyondblue Mental health has a huge impact on the personal and work lives of each of our employees, as well as those of our clients. beyondblue provides information and support to help everyone in Australia achieve their best possible mental health, “whatever their age and wherever they live.” With mental illness an increasing issue in rural Australia, Elders established a partnership program with the North Queensland Cowboys to deliver a community program targeting mental health, working towards greater awareness and support, which has continued throughout the financial year. Elders also participated in R U OKAY Day to encourage having conversations about
Elders’ CEO and Managing Director, Mark Allison, and Elders’ General Manager mental health on a national level, with ‘mateship manuals’ People, Innovation and Brand, Karen Ross with RFDS’ General Manager, Charlie sent to all branches. Paterson at the Royal Flying Doctor Service Central Operations base in Adelaide.
13 14 Operating and Financial Review
15 2017 Annual Report — Elders
Operating and Financial Review
In Australia, Elders works closely with Elders is focused on primary producers to provide products, marketing options and specialist creating value for all of its technical advice across retail, agency stakeholders in Australia and and financial product and service categories. Elders is also a leading internationally. We achieve Australian rural and residential property agency and management network. this through approximately This network includes both company owned and franchise offices in both 2,000 employees across 440 major population centres and regional points of presence throughout areas. Our feed and processing business across Australia operates a top-tier beef Australia, and in China and cattle feedlot in New South Wales, an integrated beef supply chain in Indonesia Indonesia. Our people use and a premium meat distribution model their expertise and knowledge in China. Elders is an important part of the to provide the inputs, advice, Australian rural landscape drawing on its proud history of service and innovation marketing options and trading in its quest to assist Australia’s primary platforms that help primary producers to be the most productive in producers to get the most out the world. of their businesses.
16 Operating and Financial Review
Profit and Loss
Profit: Reported and Underlying $million FY17 FY16 Change Sales 1,603.1 1,519.3 83.8
Australian Network 112.2 89.8 22.4 Feed and Processing Services 4.9 3.8 1.1 Corporate Services and Unallocated Costs (46.7) (37.4) (9.3)
Underlying EBIT 70.4 56.1 14.3 Finance Costs (7.3) (9.3) 2.1
Underlying profit before tax 63.2 46.8 16.4 Tax (2.9) (2.9) 0.1 Non-controlling Interests (2.6) (2.7) 0.1
Underlying profit to shareholders 57.7 41.2 16.5 Items excluded from underlying profit 58.3 10.4 47.9 Reported profit after tax to shareholders 116.0 51.6 64.4 Underlying EBITDA 74.6 59.8 14.7
Chart 1 — Underlying performance by product ($million)
Product margin Key movements in profit by product resulted from: 8.9 1.0 (0.2) (16.9) ——Retail benefited from improved 2.7 summer cropping conditions and 11.0 2.2 57.7 geographical expansion 7.8 ——Agency improved with strong cattle 41.2 and sheep prices and benefit from footprint growth ——Real Estate earnings improved with increased farm land and residential property turnover ——Financial Services boosted by StockCo and Elders Insurance FY16 Retail Agency Real Estate Financial Feed and Digital and Costs Interest, FY17 Underlying Products Services Services Services Processing Technical tax and Underlying acquisitions Pro t Services NCI Pro t ——Feed and Processing earnings Chart 2 — Underlying EBIT by product ($million) improved with increased utilisation at Killara feedlot ——Higher costs to drive Eight Point Plan initiatives, including acquisitions (252.1) (269.0) and footprint growth, and increased 0.8 0.6 15.5 35.1 56.1 14.5 31.9 111.4 26.2 29.2 70.4 122.4 126.2 incentives 134.0 ——Interest expense savings resulting from lower discount expense related to provisions and improved working FY17 FY16 capital financing terms
Retail Agency Real Estate Financial Feed and Digital Costs Underlying Products Services Services Services Processing and EBIT Services Technical
17 2017 Annual Report — Elders
Chart 3 — Underlying performance by geography ($million) Key movements in profit by geography resulted from: 11.8 (0.6) (1.2) (8.4) ——Northern Australia benefitted from 2.2 57.7 12.7 high cattle prices, improved summer retail performance, and upside from
41.2 geographical expansion ——Southern Australia performance driven by retail improvements, along with livestock agency upside from high sheep prices and footprint expansion ——Western Australia impacted by a FY16 Northern Southern Western International Corporate Interest, tax FY17 Underlying Australia Australia Australia and and NCI Underlying decline in retail earnings, offset by Prot unallocated Prot costs increased livestock and real estate agency earnings Chart 4 — Underlying EBIT by geography ($million) ——High input costs continue to adversely impact the International margins ——Higher corporate and unallocated costs from increased short term incentives resulting from improved profitability across the business (1.0) (38.2) (2.2) (46.6) ——Interest expense savings resulting 56.1 41.6 31.0 22.7 70.4 22.0 53.4 43.8 from lower discount expense related to provisions and improved working FY17 FY16 capital financing terms
Northern Southern Western International Corporate and Underlying Australia Australia Australia unallocated costs EBIT
The statutory result included a number of items that are unrelated to operating financial results. Measurement and analysis of financial results excluding these items is considered to give a meaningful representation of like-for-like performance from ongoing operations (“underlying profit”). Underlying profit is a non-IFRS measure and is not audited or reviewed. Items excluded from underlying profit are: $million FY17 Commentary Brand name impairment reversal, 38.3 Based on delivery of Eight Point Plan net of tax Live Export 4.5 Operating profits and gain on disposal Fair value adjustment of 2.3 Revaluation of initial 10% holding investment in Elders Insurance to fair value IT transformation costs (2.1) Refresh current infrastructure and services Tax asset adjustment 15.2 Recognition of tax losses based on profitability forecasts
Items excluded from underlying 58.3 profit
18 Operating and Financial Review
Balance Sheet
Key Items $million as at: Sep-17 Sep-16 Change Inventory 111.1 109.6 1.5 Livestock 44.6 36.1 8.5 Trade and other receivables 385.6 381.3 4.3 Trade and other payables (360.4) (335.4) (25.5)
Working capital 180.5 191.6 (11.1) Borrowings: working capital and other facilities (130.5) (121.3) (9.2) Cash and cash equivalents 35.2 35.2 0.0
Net debt (95.3) (86.1) (9.2) Provisions (53.0) (47.0) (6.0)
Shareholders’ equity 257.7 186.5 71.3 Underlying return on capital 26.8% 28.1% (1.3%)
Working capital Working capital balances by product were:
$million Sep-17 Sep-16 Change Retail Products 136.8 131.3 4%
Agency Services 19.4 40.3 52%
Real Estate 1.6 1.1 45%
Financial Services 11.4 (3.3) n/m
Feed and Processing Services 50.2 38.9 29%
Live Export Services - 17.1 100%
Other (39.0) (33.7) 16%
Working capital (balance date) 180.5 191.6 6% Working capital (average) 223.1 216.3 3%
Working capital as at 30 September 2017 was 5.8% lower than 30 September 2016. Lower working capital balances resulted from: ——Increased activity in Retail ——Variability of livestock activity leading up to balance date ——Investment in Financial Services through provision of shareholder funding to StockCo ——Higher livestock prices and increase in utilisation at the Killara feedlot ——Lower Live Export balances post exit Average working capital deployed during FY17 was $223.1 million compared to $216.3 million in FY16.
19 2017 Annual Report — Elders
Return on capital Chart 5 — Underlying return on capital
26.8% 28.1%
Sep-17 Sep-16
Slight decline in return on capital: Net debt of $95.3 million as at ——Continued strong agency earnings, particularly livestock, September 2017 was $9.2 million higher which requires minimal working capital than September 2016: ——Investment in aligned financial services providers which deliver a lower risk earnings profile ——Increase in net debt at balance date reflects strong cash generation, ——Stable retail earnings and capital mix offset by acquisition related cash Net debt outflows Chart 6 — Net debt ——Average net debt steady over period ——Leverage, interest cover and gearing 137 135 ratio improvement with increased profitability Provisions 95 Provisions increased during the year 86 driven by an increase in employee entitlements, offset by the utilisation and reversal of provisions relating to the Live Export divestment. At balance date Average Sep-17 Sep-16 Sep-17 Sep-16 Shareholders’ equity Shareholders’ equity increased by $71.3 Key Ratios Sep-17 Sep-16 Change million to $257.7 million as a result of the Leverage (average net debt to EBITDA) 1.8 2.2 (0.4) FY17 net profit, offset by the $42 million Hybrid acquisition in the first half of 2017. Interest cover (EBITDA to net interest) 10.3 6.4 3.9
Gearing (average net debt to closing equity) 52% 72% 20%
20 Operating and Financial Review
Cash Flow
$million FY17 FY16 Change Operating cash flow 81.6 48.7 32.9 Investing cash flow (42.0) (27.3) (14.7) Financing cash flow (39.6) 13.1 (52.7)
Total cash flow 0.0 34.5 (34.4)
Chart 7 — Cash flow ($million)
Working capital movements 20.7 (0.8) (14.7)
85.5 (2.5) (13.4) 13.6 (1.9) (5.0) 81.6 (3.5) 78.1
EBITDA Retail Agency Real Financial Feed and Live Other Interest, Operating Capex Free Cash Products Services Estate Services Processing Export tax and Cash Flow Flow Services Services dividends
A$m Retail Agency Real Financial Feed and Live Other Total Products Services Estate Services Process Export EBITDA adjusted 49.5 37.2 13.2 10.4 6.4 0.8 (32.0) 85.5 Movements in assets and (2.5) 20.7 (0.8) (14.7) (13.4) 13.6 (1.9) 1.1 liabilities Interest, tax and dividends (5.0) (5.0) Operating cash flow 47.0 57.9 12.4 (4.3) (7.0) 14.5 (38.9) 81.6
Highlights from the FY17 cash flow were: ——Strong EBITDA cash conversion ——Working capital movements reflect: ––Variability of livestock activity leading up to balance date ––Investment in Financial Services through provision of shareholder funding to StockCo ––Increased utilisation in the Feed and Processing feedlots ––Reduction in Live Export working capital balance due to reduced shipping activity prior to exit Investing outflow of $42.0 million included acquisitions of: ——10% stake in Elders Insurance (Underwriting Agency) in April 2016 ——30% stake in StockCo ——100% acquisitions of Southern Districts Estate Agency and Ace Ohlsson ——Facility upgrades at Killara Financing outflow of $39.6 million mainly as a result of the Hybrid realisation completed in the first half.
21 22 Material Business Risks
23 2017 Annual Report — Elders
Material Business Risks
Elders’ risk appetite is set by the Board and recorded in Achievement of our the Elders Resilience Policy and Framework. The Executive Committee maintains a keen focus on those risks that have a business objectives could higher rating than the desired appetite and continually assesses be affected by a number of the operational and strategic environment for new and emerging risks. risks that might, individually Risks are reported to the Board Audit, Risk and Compliance or collectively, have an Committee to ensure the Board is adequately informed of the evolving risk environment. impact. More detail on Elders’ approach to managing risk is contained Following is an overview of key risks Elders faces in seeking in the Corporate Governance Statement on Elders’ website at to achieve its objectives. The risks noted are not exhaustive elders.com.au/corporategovernance. and are in no particular order. Elders seeks to identify, analyse, evaluate, treat and monitor all risks, in order to maximize opportunities and prevent or reduce losses.
Material Business Risk Our strategy Health and safety
Safety risk is inherent in Elders’ business activities. The safety The safety of our people and an effective safety culture of our people, clients and the general community with whom within Elders is a critical and non-negotiable corporate we interact is our number one priority. Key safety risks include objective. Through the implementation of a safety management livestock handling, remote driving, manual handling and system based on continuous improvement, we reduce risks chemical handling. which might impact our operations. We recognise and reward safety initiatives and safe behaviours via our monthly One Elders Awards program. This initiative values and promotes safety and ensures our positive safety culture is embedded throughout our operations.
Animal welfare
The safety and welfare of livestock is of paramount Elders has “zero tolerance” for poor treatment of livestock. importance to Elders and the company has controls in place Our people are trained in safe livestock handling protocols to ensure the wellbeing and proper treatment of all animals and methods and we comply with and strive to exceed all within our control. Failure to protect the welfare of livestock government requirements. In addition we actively engage in our control might result in stakeholder activity and with the industry and stakeholders to improve animal welfare reputational damage. practices where possible.
Commodity pricing
Elders has exposure to commodity price fluctuations in its Exposures are managed through diversification of income Agency, Retail and Feed and Processing operations where streams by product and geography, controlled inventory levels movements in commodity prices, exchange rates and/or a and flexible remuneration models for the Agency business which change in the volume of Australian rural production could allow for cost base adjustments in response to fluctuations. affect margins in the future.
Adverse climatic conditions
Adverse climatic conditions and other natural events may To limit the impact of such risks, Elders maintains both a reduce the output of relevant agricultural products and affect geographical spread of operations and a diverse product the operation of Elders’ business. Natural events, caused or and service range. affected by weather, such as frost, drought, flood and fire can have an impact. Such conditions can influence the supply of and demand for rural products and services provided by Elders, resulting in varied revenue levels.
24 Material Business Risks
Material Business Risk Our strategy Biosecurity threats
Biosecurity threats to agricultural products and livestock may To manage the impact, Elders has in place employee training affect Elders’ business. An outbreak of a systemic animal and disease management protocols. In addition, Elders also or plant disease can lead to quarantine conditions in rural has a business continuity framework in place to respond to Australia and reduce producers’ need for goods and services and recover from the risk of disruption. or affect their ability to operate.
Food safety
Through our Feed and Processing operations, Elders handles This risk is managed through HACCP accreditation in livestock within the food chain prior to and during processing meat processing plants and strict animal health controls in which risk of contamination exists. in the feedlots.
Fraud and corruption
Elders is exposed to fraud, bribery and corruption risks, Elders has a number of controls to counter these risks, including including in foreign markets in which it operates. appropriate segregation of duties, the terms of its Code of Conduct, compliance policies, fraud policy, anti-bribery and corruption policy, training throughout the business, financial reconciliation processes, whistle-blower policy and reporting hot-line, leave management protocols and an Internal Audit program which is complemented by periodic reviews conducted by the external auditor.
Counterparty
Elders’ counterparty universe is wide and varied. We provide This risk is managed by individual counterparty credit risk credit to approved counterparties, both domestically and assessments, maintaining credit policies and procedures, internationally, and may be exposed to losses associated oversight by the Credit Committee, debtor monitoring and with a client’s inability to repay debt. reporting, trade credit insurance (major livestock processors debtor) and high level reviews of significant credit issues by the CEO and CFO, and if sufficiently material, the Board. To address counterparty risk through its foreign operations, Elders performs counterparty risk assessments, undertakes due diligence processes and seeks to establish long-term strategic relationships with key customers.
Political
Elders’ operates in foreign jurisdictions where the business Elders controls consequential exposure to this risk through may be affected by changes implemented by foreign contractual means wherever practicable and seeks to cultivate governments. In addition, subsidies given to foreign rural a diverse range of international markets to reduce concentration producers may adversely affect the competitive position risk. The Board maintains control and oversight over ventures in of Australian rural outputs. new jurisdictions.
Cyber threats
Elders operations rely on information technology solutions Elders maintains a strong focus on our information technology which expose us to the threat of cyber disruption and loss capabilities and we continue to implement and embed stronger of data. security for our IT infrastructure.
Logistics
Due to the nature of our operations, we work with numerous This operational risk will continue to be a strong focus in logistics suppliers who are working towards compliance with 2018 and work with government regulators and other parties the amended government regulations. will continue to improve our processes as well as educate and inform the logistics suppliers we transact with.
Note — In line with ASX Corporate Governance Council recommendation 7.4 Elders has categorised our material business risks as follows: Economic sustainability — the ability to continue operating at a particular level of economic production over the long-term. Environmental sustainability — the ability to continue operating in a manner that does not compromise the health of the ecosystems in which it operates over the long-term. Social sustainability — the ability to continue operating in a manner that meets accepted social norms and needs over the long-term.
25 26 Review of Operations
27 2017 Annual Report — Elders
Key Statistics
Retail Products Farm Supplies $1.1b retail sales
Fertiliser 718k tonnes fertiliser
Agency Services Livestock 9.0m head sheep 1.5m head cattle Wool 349k wool bales
Grain 0.2m grain tonnes
Real Estate Services Farmland $1.0b farmland sales
Residential $670m residential sales
Property Management 8,291 properties under management
Franchise 130 franchisees
Financial Services Agri Finance $2.8b loan book1 $1.6b deposit book1 $78m StockCo book Insurance $654m gross written premium2
Digital and Technical Services Fee for Service 144 agronomists
AuctionsPlus (50%) 731k head sheep 104k head cattle Elders Weather 182.4m hits
Feed and Processing Services Killara Feedlot 52k head cattle
Elders Indonesia 18k head cattle
Elders China $13m sales
1 Products distributed on behalf of Rural Bank Limited 2 Business conducted by Elders Insurance (Underwriting Agency) Pty Ltd which is owned 20% Elders and 80% QBE
28 Review of Operations
Review of Operations
Retail Products
Elders is one of Australia’s leading Retail margin ($m) suppliers of rural farm inputs including 126.2 134.0 seeds, fertilisers, agricultural chemicals, 111.2 105.9 animal health products and general rural 102.1 merchandise. We also provide professional production and cropping advice with over 144 agronomists nationwide. Performance FY13 FY14 FY15 FY16 FY17 Retail margins improved by $7.8 million in FY17. Normalised summer cropping conditions across northern New South Wales, Victoria and South Australia generated strong crop protection and fertiliser demand. Conditions in the second Margin by product half were challenging in Western Australia, impacting sales activity across the northern wheat belt. Geographical expansion, including the recruitment of high performing employees in Tasmania and New South Wales, and the acquisition of horticultural specialist 81% 19% business Ace Ohlsson, were earnings accretive. Margins also improved through Farm Supplies Fertiliser continued focus on price book management and increased target rebates earn.
Strategy Margin split by geography To deliver profitable and capital light growth of our retail products portfolio with an enhanced customer benefit and experience.
Strategy Achievement Plan Capital light, ——Continued improvement ——Improve product ranging 18% 42% 40% return on capital in supplier trading within key animal health West South North driven business agreements, including and agricultural chemicals model increased deferred payment categories terms and increased ——Increased focus on performance based target specialised high value rebates cropping market, including ——Continue to focus on margin in selected geographical improvement through price gaps book management Product focus ——Successful introduction ——Introduce Elders home of CSBP Fertiliser supply branded products agreement in Western ——Build on customer loyalty Australia through increased provision ——Increase support of agency of agronomy services products and consignment locations ——Access to east coast Horticultural markets through acquisition People ——Selective recruitment of ——Identify, select and high performing staff in key recruit proven localised agricultural areas management to establish Elders’ presence in selected geographical gap areas ——Launch Centre of Excellence
29 2017 Annual Report — Elders
Agency Services
Elders provides a range of marketing options Agency margin ($m) for livestock, wool, and grain. 122.4 111.4 The Elders livestock network comprises livestock agents and employees operating 106.2 90.5 across Australia conducting on-farm sales to third parties, regular physical and online 78.8 public livestock auctions and direct sales to Elders-owned and third-party feedlots and livestock exporters. Elders is one of the largest wool agents for the sale of Australian greasy wool and operates a brokering service for wool growers. Our team of dedicated wool specialists assists clients with wool marketing, in-shed wool preparation, ram selection and sheep classing. FY13 FY14 FY15 FY16 FY17 Elders’ grain marketing model provides pricing from multiple buyers and offers a cutting edge commodity origination platform, maximising choice for growers. Margin by product Performance Livestock prices and footprint expansion drove margin improvement of $10.4 million. Cattle and sheep prices remained high throughout the year and rose on average 10% and 22% respectively. Sustained high cattle prices were driven by continued strong 85% 15% domestic, restocker and export demand. Livestock Wool Elders’ wool earnings improved $0.8 million, despite bales sold being slightly lower than FY16. The higher wool market prices and corresponding wool earn per bale for Elders offset the lower activity. Margin split by geography Elders’ grain platform transacted 0.2 million tonnes during the FY17 year. Strategy To deliver profitable growth of the agency services portfolio through business improvement, recruitment and acquisition for our livestock and wool businesses 17% 51% 32% and through focussed growth of our grain business. West South North
Strategy Achievement Plan Operating ——Increase agency ——Continue livestock, model opportunity and earnings wool and grain product through StockCo expansion development to improve ——Long-term wool logistics and expand offering and distribution agreement ——Continue footprint renegotiated expansion through targeted acquisitions People ——Transition to variabilised ——Continued footprint remuneration structures expansion through which reward recruitment of key outperformance operatives with aligned ——Selective recruitment values and performance of livestock and wool characteristics personnel
30 Review of Operations
Real Estate Services
Elders’ real estate services include Real Estate margin ($m) company owned rural agency services primarily involved in the marketing of farms, 31.9 29.2 stations and lifestyle estates. It also includes 27.0 27.5 a network of residential real estate agencies 26.2 providing agency and property management services in major population centres and regional areas through company owned and FY13 FY14 FY15 FY16 FY17 franchise offices. Other services include water and home loan broking. Margin by product Performance Favourable market conditions, including low interest rates and high livestock prices continue to generate demand for large cattle farming and broadacre cropping properties, with Elders experiencing an increase of $122 million (14%) in turnover 68% 32% for farmland real estate on last year. Agency Property Management Despite softening real estate markets in the Northern and Western geographies, Elders has maintained residential turnover levels and earnings. Acquisitions of agency and property management businesses contributed to the strong result for the year. Margin split by geography Strategy To deliver profitable growth of the real estate services portfolio through driving business improvement, recruitment and acquisition for all real estate services.
18% 34% 48% Strategy Achievement Plan West South North Operating ——Expansion achieved through ——Increase company owned model strategic acquisitions in presence in major regional Bunbury and south east centres South Australia ——Ongoing focus on ——Strong pipeline of productivity and efficiency acquisitions ——Elders real estate profile enhancement People ——Sales workforce ——Recruitment of high strengthened with quality performing sales recruits appointed across representatives in both the all zones broadacre and residential ——Investment in water broking agency business capability ——Recruitment of home loan brokers ——Increased productivity through improvement initiatives and training
31 2017 Annual Report — Elders
Financial Services
Elders distributes a wide range of banking, Financial Services margin ($m) funding, insurance and financial planning 35.1 products through its Australian network. We work with a number of third parties to enable us to deliver these products; 25.8 25.8 25.4 26.2 Rural Bank and StockCo for banking and livestock funding products and Elders Insurance (a QBE subsidiary) for insurance. FY13 FY14 FY15 FY16 FY17 Collectively, these relationships enable us to offer a broad spectrum of products designed Margin by product to help our customers grow their business. Performance Financial Services was boosted by acquisitions during the year, being the purchase 71% 29% of 30% of StockCo (a specialist livestock financier) on 13 October 2016, and an Banking Insurance additional 10% of Elders Insurance on 1 December 2016, raising our share to 20%. The banking distribution arrangement with Rural Bank yielded strong results with the performing loan book growing $84 million (3%) on last year. Gross written Margin split by geography premiums in the Insurance business for the year were $654 million, representing growth of $44 million (7%) on last year. Strategy To deliver profitable growth of the financial services portfolio through business improvement, product development and upstream investment in our services 23% 45% 32% business. West South North
Strategy Achievement Plan Deeper, more ——Acquired additional 10% of ——Investment in aligned productive Elders Insurance financial service product partnerships ——Acquired 30% of StockCo’s providers Australian livestock funding ——Collaboration with business Rural Bank to improve productivity and efficiency of sales team Increased ——National television ——Continue advertising market marketing campaign for investment awareness and Agri Finance ——Further internal referral cross-sell within ——Increased digital presence campaigns to drive cross- Elders via website enhancements sell of Financial Services and electronic marketing products to Elders campaigns customers ——Internal referral campaigns facilitating new banking leads
32 Review of Operations
Feed and Processing Services
In Australia, Elders operates Killara Feed and Processing margin ($m)
Feedlot, a beef cattle feedlot near Tamworth 18.3 15.5 in New South Wales. In Indonesia, Elders 14.7 14.5 operates an integrated feedlot, abattoir and 13.5 meat distribution business. Elders imports, processes and distributes premium Australian meat in China. Performance FY13 FY14 FY15 FY16 FY17 Earnings for the Killara feedlot increased 17% on last year. The improved performance came from efficiencies arising from a higher utilisation of 95%, compared to 82% last year, continued success in paddock procurement strategies and lower repairs and Margin by product maintenance expenses following significant capital investment. High cattle costs and tightening supply continue to adversely impact the overseas businesses. Indonesian feedlot earnings were adversely impacted by longer days on feed caused by irregular supply, while the Indonesia retail meat business benefited 77% 17% 6% from the commencement of importation of Elders’ branded Killara and Marlee Killara (Aus) Indonesia China products. Despite increased sales activity and growth in the customer base in the China business, pricing pressures and the high Australian dollar resulted in lower earnings. Margin split by geography
Strategy 6% To deliver continuous improvement in EBIT and ROC for all businesses with active China portfolio composition management.
17% Strategy Achievement Plan Indonesia Robust systems ——Implementation of ERP ——Improve reporting and 77% systems in both Indonesia transparency allowing Australia and China businesses effective decision making Return on ——Capital upgrade plan at ——Improve procurement capital focus Killara allowed increased strategies through utilisation and efficiencies backgrounding and use of ——Abattoir capacity external facilities for Killara optimised in Indonesia with ——Sale of non-core assets introduction of external within the Indonesian custom processing business ——Allocation of capital based on approved business case discipline Integrated red ——Killara branded product line ——Increase focus on higher meat supply launched and distributed in margin markets chain China and Indonesia ——Expansion of Killara branded product in Bali market
33 Outlook
34 Outlook
Real Estate Services The future financial ——Positive real estate activity driven performance of Elders will, by strong demand for large scale agricultural properties and continued as always, be subject to low interest rates. ——Residential turnover and property the influence of seasonal, management earnings will benefit market and international from full year impact of acquisitions completed during the FY17 year, trade relation factors that mostly in Western Australia. ——Water broking earnings will increase affect the Australian farm in line with the recent investment in sector. At the date of employee capabilities. this report, the following Financial Services ——Continued momentum and growth conditions are forecast: is likely from the banking and livestock funding products. ——Insurance earnings look to increase Retail Products from FY17 levels due to a full year ——Dry winter conditions are likely to affect crop and of 20% ownership. pasture growth with crop production to normalise to historical averages. Feed and Processing ——The full year benefit of acquisitions completed during ——Investment in infrastructure at Killara FY17 will deliver further benefits during FY18. over the last two years will support sustained utilisation and efficiency ——Retail will continue to pursue geographical and crop levels as enjoyed in FY17. segment growth opportunities. ——Higher commodity prices, in Agency Services particular grain, are expected to ——Cattle prices are predicted to ease during FY18 due impact profitability at Killara feedlot. to livestock herd expansion and lower forecast beef ——High input costs will continue to export prices. adversely impact the International ——Sheep prices expected to remain strong supported operations. by exporter and restocker demand. ——Livestock volumes are expected to increase through Costs and Capital continued footprint expansion and additional trading ——Continued focus in controlling base opportunities. costs and improving productivity measures for the business. ——Wool earnings growth in FY18 is expected with a strong pipeline of wool in store, strengthening wool prices and ——Investment in strategic and growth slow supply growth. initiatives will increase cost and capital usage in FY18.
35 Digital and Technical Services Snapshot
Elders continues to Elders Weather App The Elders Weather App has undergone change to maximise introduce products and tools available to users. services to benefit clients 149,000 and the productivity of their Elders Weather Users businesses. Agriculture has 5,399,888 increasing demands for User sessions in FY17 digital solutions, and the ——Advanced push notification rate of change is expected ——Customisable layout and interface to increase with succession ——48 hour forecasts (with hourly breakdown) ——7 Day synoptic to future generations. ——Global Forecast System (GFS) 0-7 and 7-14 day A snapshot of Elders’ ——Observation history key digital initiatives ——Minimum and maximum temperature for FY17 include: ——Chance of rain and amount ——28 day rain forecast ——Dew point ——Delta-T ——Rain forecast maps ——Extra radar layers ——Local and national radar maps ——National satellite ——Warnings ——Wind (gusts)
——Tides and moon ——Sunrise/sunset
36 Digital and Technical Services Snapshot
Elders’ Smart Farmer App will be as trustworthy as the Country Hour.
Elders Online Smart Farmer App The Elders Online client portal is a key initiative for the Eight Research and phase one development of the Smart Point Plan. Clients can now access their account information Farmer App occurred in FY17. The app will assist clients in online. Since the launch of the new version in July 2017, more decision making on-farm by presenting consolidated and than 5,000 clients have accessed their Elders Online account – aggregated farm management data from several industry this figure is growing daily. leading and reputable sources. The benefits for clients include; ——All historical transactions, dating back up to ten Online Sales and Classifieds years can now be viewed. The Sales and Classifieds section is the most visited page on the Elders website and has undergone some significant ——Clients can access invoices and have the option changes during FY17. Clients are able to create personal to print or save as a PDF. alerts to receive notifications when livestock listings, which ——The summary screen shows clients their amounts match their criteria, are added to the website. Integrating overdue, currently due and future items which will with AuctionsPlus also enables listings to feed through to come due (for deferred term purchases). the Elders website. ——The data displayed for clients is real time. ——Clients can download a CSV file of transactional data for loading into their own accounting package, such Thomas Elder Consulting as MYOB or Xero. In FY17 Elders researched and developed a premium agribusiness consultancy model that provides an independent, eldersrural.com.au/elders-online fee-for-service offering to clients, known as Thomas Elder Consulting or TEC. The consultants are top-tier experts in Elders Grain App their field, with the ability to deliver sustainable, holistic farm management strategies that increase the productivity and Elders has increased its digital offering with the introduction profitability of their client’s enterprise. TEC is based on science, of a new app for grain growers. leveraged with technology and delivered through expertise. Historically, Elders delivered grain price updates to clients via text messaging – the Elders Grain app delivers price updates instantly through push notifications. With a wide Trial Sites range of partner relationships in the international grain Elders aims to bring global technology to regional Australia. market as well as domestic end users, Elders enables Providing information to producers with the latest and pipeline growers to contract grain for maximum effect in a time innovative technology and testing it under local conditions. sensitive commodity environment. The focus for 2017 was on genetics, herbicides, fungicides and nutrition, having previously looked into managing risks like frost and drought. Elders Insiders Elders Insiders enables clients and employees to have their say 8 and assist in shaping Elders’ development through participation Trial Sites in surveys. The Elders Insiders community has grown rapidly to over 3,336 participants, hosting 15 surveys covering a range of topics from safety to livestock, retail to client satisfaction. Over 30 trials in FY17
37 Elders Expands National Footprint
Elders has played a significant role in Australian history throughout the Company’s 178 year journey, and is an iconic part of the rural landscape today. Having experienced many changes and transformations, Elders continued its growth strategy during the financial year through a targeted approach directed by the Eight Point Plan.
38 Elders Expands National Footprint
Elders has increased its service offering and presence in Southern Districts Estate Agency two key areas of growth, the horticulture industry through the acquisition of Ace Ohlsson, and its real estate business Under the leadership of General Manager Tom Russo, Elders with the acquisition of Southern Districts Estate Agency. Real Estate has expanded by 12 new locations, taking the total number of Real Estate offices to 276. The acquisition of well- Chief Executive Officer and Managing Director, Mark Allison known real estate business, Southern Districts Estate Agency said the acquisitions support Elders’ Eight Point Plan initiatives (SDEA), contributed three new offices in Bunbury, Capel and to expand the geographical footprint, increasing the business’s Collie in Western Australia. prospects for sustainable long term growth. Established more than 40 years ago as a rural real estate and Elders is continuing to target profitable growth and expansion auctioneering business, SDEA is one of the longest operating of the business through improvement, recruitment and real estate agencies in the South West. Its service offerings acquisition – including 20 new branches by 2020. include rural, residential and commercial sales, as well as residential and commercial property management. SDEA has “We’re looking to invest in more branches, in the best areas, become Elders’ first large scale property management business with the best people, and the best offer, so we can continue in the West Zone. The acquisition also saw 60 new real estate to grow alongside Australian agriculture,” Mark said. professionals convert to the pink shirt. Elders’ General Manager Real Estate, Tom Russo says that Ace Ohlsson Elders is excited about the strategic acquisition and is confident Established in 1938, Ace Ohlsson provides horticultural that the SDEA team will be an excellent asset to the Elders crop protection, vegetable and flower seeds, fertilisers, Real Estate network in achieving its improvement and growth pest control, plant nutrition advisory services and strategic ambitions. cropping programs. The central retail operation is strategically based at the Sydney markets to service local growers in the “Our Board has backed the strategic direction for the Real early hours of the morning as they deliver their produce for Estate business, which is heavily aimed around increased sale and distribution. Ace Ohlsson also has six stocking points growth and a greater brand presence, right across Australia,” within a 300km radius of Sydney, each with agronomists he said. servicing vegetable, fruit, wine grape and turf farmers. Ace “We are focused on lifting the service offering for our teams, Ohlsson agronomists are constantly on farms inspecting crops, branches, franchise principals and, most importantly, clients soil and leaf testing and advising growers the best strategy – ensuring we’ve got innovative solutions and investing in for their produce. Additional professional capabilities include experienced professionals to achieve operational excellence.” financial assessments, and advice in relation to machinery, marketing, irrigation and seed technology. Elders’ West Zone General Manager James Cornish said; “the Bunbury branch is a very important part of our business “The Ace Ohlsson business will continue to build on and has achieved some tremendous growth in recent years, Elders’ breadth of horticultural and technical specialists, the branch team is now complemented by SDEA.” and increase our market share in New South Wales. As well established leaders in the horticulture industry, we believe “We are committed to growing the business and our presence the Ace Ohlsson business is a good strategic and cultural in Western Australia and the acquisition of SDEA presents an fit for Elders,” Mark said. excellent opportunity to further diversify our client offering across our core products and services.”
39 40 Board of Directors
41 2017 Annual Report — Elders
Board of Directors
Pictured from left: Mr James Jackson, Ms Robyn Clubb, Mr Mark Allison, Mr Hutch Ranck and Mr Ian Wilton
Mr James Jackson Ms Robyn Clubb Mr Mark Charles Allison B Com, FAICD BEc, CA, F Fin, MAICD BAgrSc, BEcon, GDM, FAICD Age 55 – Non-Executive Director and Age 60 – Non-executive director of the Age 57 – Appointed Chief Executive Deputy Chairman of the Board since Board since 21 September 2015. She is Officer and Managing Director in May April 2014. He is also Chairman of the also a member of the Audit, Risk and 2014. He has extensive experience Remuneration and Human Resources Compliance Committee, Work Health spanning 30 years in the agribusiness Committee and a member of the Work and Safety Committee, Remuneration sector. He is a former Managing Director Health and Safety Committee, the and Human Resources Committee and of Wesfarmers Landmark Limited and Audit Risk and Compliance Committee Nomination and Prudential Committee. Wesfarmers CSBP Limited and Executive and the Nomination and Prudential Robyn is a Chartered Accountant and Director of GrainGrowers Limited. Prior Committee. Mr Jackson has more than Fellow of the Finance & Securities to his appointment at Wesfarmers in 25 years’ experience in capital markets Institute of Australia, with senior 2001, Mr Allison held senior positions and agribusiness, both in Australia executive experience of over twenty with Orica Limited as General Manager and overseas. He held a Senior Vice years in the financial services industry, of Crop Care Australasia and with President role with investment bank SG working for organisations including AMP Incitec Limited as General Manager – Warburg (now part of UBS) in New York Limited and Citibank Limited. Fertilisers. Between 1982 and 1996 Mr and was a director of MSF Sugar Limited Allison performed a series of senior She is currently a Director of Craig from 2004 to 2012, including being sales, marketing and technical roles Mostyn Group Limited, Chair of the Chairman from 2008. He is currently in the Crop Protection, Animal Health Australian Wool Exchange Limited, Chair Chairman of Australian Rural Capital and Fertiliser industries. Mr Allison was of the Rice Marketing Board for the Limited. Mr Jackson owns and operates the Managing Director of Makhteshim State of NSW, Councillor of the Royal a beef cattle enterprise in northern New Agan Australasia Pty Ltd from 2005 to Agricultural Society of NSW and Chair of South Wales and is a resident of New 2007 and Managing Director and Chief the NSW Primary Industries Ministerial South Wales. Mr Jackson brings strong Executive Officer of Jeminex Limited Advisory Council. Robyn is a former skills and knowledge in capital markets, from 2007 to 2008. Mr Allison is a non-executive director of Rural Bank Ltd, agricultural production and supply resident of South Australia. Beef CRC Limited, UrbanGrowth (a NSW chains, corporate governance, corporate state-owned corporation responsible and financial strategy and hands on for urban land development) and Murray experience in the rural agency business. Irrigation Limited. Ms Clubb is a resident of New South Wales.
42 Board of Directors
Mr James Hutchison Mr Ian Wilton Company Secretaries (Hutch) Ranck MSc, FCCA, FCPA, FAICD, CA BS Econ, FAICD Mr Peter Gordon Hastings Age 65 – Non-Executive Director BA, LLB, GDLP, FGIA Age 69 – Appointed Chairman in April of the Board since April 2014. He 2014. Non-executive director of the is also Chairman of the Audit, Risk Mr Hastings was appointed Company Board since June 2008. He is also and Compliance Committee and Secretary in February 2010. He held Chairman of the Work Health and Safety a member of the Work Health and the position of Group Solicitor with the Committee and the Nomination and Safety Committee, the Nomination Elders Group between 1995 and 1999 Prudential Committee and a member and Prudential Committee and the and again between 2003 and 2010, and of the Remuneration and Human Remuneration and Human Resources has held the position of General Counsel Resources Committee and the Audit, Committee. Ian is an accountant since February 2010. Risk and Compliance Committee. with extensive experience across Hutch retired as Managing Director of the agricultural sector as both a Ms Sanjeeta Singh DuPont (Australia) and Group Managing Non-Executive Director and Senior BEd (Primary), FGIA Executive. He has held Chief Financial Director of DuPont ASEAN in May 2010. Ms Singh was appointed Joint Company Officer positions with the sugar division In his 31 years with DuPont Hutch has Secretary in March 2016, after having of CSR Limited, Ridley Corporation led businesses in ANZ and Asia Pacific been Assistant Company Secretary Limited and GrainCorp Limited and was in Agriculture, Pharmaceuticals, and for the previous 6 years. Ms Singh has President and Chief Executive Officer Industrial Chemicals. In the last 10 years extensive experience in all governance of GrainCorp Malt. Mr Wilton is a Non- Hutch has served as a director in a activities having served with Elders for Executive Director of the Sheep CRC variety of companies and organisations over 10 years. including, The Business Council of Limited, Australian Innovation Company Australia, an Australian Government Ltd and Tivoli Investments Pty Ltd and Statutory Authority – APVMA, The Chair of the advisory board of MacKays Chemical and Plastics Association Banana Marketing. Mr Wilton is a – PACIA, and The Crop Chemical resident of New South Wales. Association – Crop Life. From 2000 until 2010 Hutch was a member of the Prime Minister’s Science, Engineering and Innovation Council – PMSEIC. Currently Hutch is a director of Iluka Resources and the CSIRO. Mr Ranck is a resident of New South Wales.
43 44 Executive Management Remarks
45 2017 Annual Report — Elders
Executive Management Remarks
Mark Allison Managing Director and Chief Executive Officer 2017 is very significant for Elders, as it marks the third year of the Eight Point Plan. The business has had a strong focus on safety, growth and innovation, and we have now set a strong platform which will serve us well to 2020. I’m pleased with the dedication and hard work of our teams across our Australian, Chinese and Indonesian businesses and thank our clients for their support.
Richard Davey Chief Financial Officer The 2017 financial year is a testament to the hard work and dedication seen across the business to continually improve efficiencies and increase profitability. Elders is in a strong growth phase with a number of acquisitions completed in FY17, and many more in the pipeline with a strategic focus to implement a greater national presence.
Peter Hastings Company Secretary and General Counsel This year, the Corporate Governance team led successful realisation of Elders’ Hybrids, which was fundamental to simplifying our capital structure. We have also made significant headway in a program of continuous improvement of Elders’ resilience principles and practices, provided valuable legal assistance in connection with each of the acquisitions and divestments undertaken by Elders and provided guidance and assistance on matters related to the safety of our people. Overall, I am pleased to report that Elders continues to adopt high standards of governance and behaviour which are conducive to shaping the culture of Elders for long-term success.
46 Executive Management Remarks
Liz Ryan General Manager — Financial Services Elders Financial Services delivered profitable growth in FY17, driven by a healthy mix of organic and in-organic initiatives. Our equity investments in StockCo (30%) and Elders Insurance (20%) performed strongly, and enhanced marketing campaigns generated new business leads across the financial services offering. Importantly, we also continued to invest in our team to ensure we have the right people in the right places, equipped to provide the best financial solutions to our customers.
Tom Russo General Manager — Real Estate This financial year we have continued to invest in the growth and improvement of the real estate business. We have delivered upon the promises made in FY16 to invest in the professionals and technology to support our national network and drive brand presence in all key markets. Our farmland agency network performed particularly well, with unprecedented levels of interest in Australian rural property driven by positive seasonal conditions, commodity prices, and the low interest rate environment. The acquisition of Southern Districts Estate Agency, together with other smaller acquisitions, drove growth in our residential agency and property management business. Late in the year we also recruited a team of water trading professionals to drive our capital light water markets strategy.
Nick Fazekas General Manager — Retail Since 2014 the Retail business has embarked on a capital light strategy to drive improvement in our return on capital metrics; the main focus being on improving purchasing margin, longer payment terms and inventory concessions. We are extremely pleased with the turnaround of our return on capital results over the period and delivering improved gross margin year on year. We have also continued focusing on rationalising our key suppliers to a core group while delivering a higher level of service offerings to our loyal customer base. During the FY17 period we have seen continued organic growth, even with difficult growing conditions in some key farming areas. We have also increased our access to east coast horticultural markets through the acquisition of Ace Ohlsson.
47 2017 Annual Report — Elders
Malcolm Hunt Zone General Manager — South This year we’ve focused on strategic recruitment which has had excellent results for the zone. High livestock prices, combined with retail improvements and footprint expansion have enabled the South to increase productivity and profitability. We’ve continued to strengthen relationships with clients and delivered tools to create better efficiencies throughout their businesses.
Greg Dunne Zone General Manager — North Our focus this year has been on our clients, our people and the communities surrounding our operations. We have also continued our partnership with the North Queensland Cowboys to continue raise awareness for mental health. The Northern areas benefitted from improved summer cropping and high cattle prices which have remained strong throughout the year.
James Cornish Zone General Manager — West Elders’ market position has continued to strengthen within the Western Zone throughout FY17. Our presence grew significantly with a number of Eight Point Plan initiatives, in particular the acquisition of the Southern Districts Estate Agency business based in the South West. The high-performing culture within our business has enabled us to continue to attract and develop the right people for the right roles. Both client and supplier relationships have further strengthened throughout the Zone this year which has seen us achieve upside across nearly every product and category.
48 Executive Management Remarks
David Adamson General Manager — Agency The Agency business continued to perform well, with continued strong domestic and export demand for both livestock and wool, providing multiple marketing options for growers. 2017 saw the business continue to implement digital tools to add value and create efficiencies across the Agency business for clients and our team.
Karen Ross General Manager — People, Innovation & Brand 2017 has been the year that we’ve really focussed on understanding our clients’ needs and as a result we’ve further increased our digital and technical services offering with data driven solutions to enhance the productivity and profitability of our clients. Our employees have continued to give back to the communities in which we operate, with the launch of Elders Give It, our employee contribution program. Elders’ was one of only two Australian companies recognised with Korn Ferry’s Employee Engagement award, demonstrating the clear connection our employees have with their own performance and the performance of the business. We are also partnering with a number of universities around the country to better facilitate research, development and extension activities for the benefit of the Australian agricultural industry.
49 Women in Pink
With some 2,000 Elders employees proudly wearing the pink shirt throughout the last financial year, 38.3% are women – which has remained consistently higher than the Agriculture, Forestry and Fishing Industry average. Elders is dedicated to targeting a shift in the diversity mindset across the business.
50 Women in Pink
An increasing number of women are joining Elders through Passionate pink shirt, Maree Crawford our Graduate Agronomy and Traineeship Programs, and the business has continued to ensure leadership programs drives equal opportunities are available to women from a diverse range of roles. Elders An agronomy powerhouse from Elders’ North Zone, completed a pilot program in the West Zone, known as Fast women in agriculture advocate and chairwoman of Australian Track which aimed to bridge the gap between operational Summer Grains Conference, Maree Crawford, is well-known and first line management capabilities, in which women for increasing awareness of women in agriculture and represented 62% of participants. The program is aimed at recognising equal opportunities. building a talent pipeline through internal upskilling and This year’s Australian Summer Grains Conference (ASGC) promotion and is set to be implemented on a national scale. was one of the biggest yet, featuring renowned scientists, Women make a significant contribution to Australian marketers, growers and leading industry identities. As agriculture and Elders is proud to highlight just a few examples chairwoman and keynote speaker, Maree was responsible for of trailblazers throughout the network. co-ordinating a team to ensure that the event was a success, managing to generate a good profit for the five joint venture partner grain associations – plus presenting women as a Steph Brooker-Jones recruits powerful force for growth of the agriculture industry. the right people “For the industry to see growth and remain economically Steph Brooker-Jones, a famous face in the wool industry and sustainable we need to enable women to have greater throughout South Australia, as well as industry advocate and involvement in the running of the farm whilst still being mentor, has supported Elders’ SA wool team to becoming 50% able to meet their share of domestic commitments.” women. Steph is also chair of Sports Shear Australia, and has travelled extensively in her various roles within the industry. Maree also believes that the future of the industry is dependent on well-trained specialists coming through a good mentorship Steph works alongside a talented group of district wool program. Although from a farming background, Maree managers stretching from Broken Hill to Ceduna and south described entering a male dominated industry as daunting and to Mount Gambier. All members of the team are driven by is a strong advocate of the next generation being trained by a combined love of livestock and wool and are committed those more experienced in the industry. to sharing their skills and experiences with their clients and industry alike. “I was taken under the wing of those above me when I first started and it ignited my passion for agriculture and taught me “I enjoy passing on knowledge and educating people, skills and knowledge I wouldn’t have otherwise acquired. One and we’re all continually learning and developing. My job is of the most important things we can do as professionals is pass to train people on a daily basis – from Elders’ trainees, to my on our knowledge to build a strong future for the industry.” clients and industry members about wool classing, preparation, and marketing. Schools call on me to help them bring an “This message ties into women in agriculture too. The more outside perspective on sheep and wool, as well as careers we lead by example and have strong women in leadership within the industry.” roles mentoring the up and coming leaders, the greater chance we have of building a sustainable industry with equal gender “People value the knowledge you can share. I feel I have always representation.” been accepted, regardless of my gender, and I think this comes back to the ability to communicate. It’s fantastic to see that Maree has also been a key player in her ‘pink shirts in paddocks’ this is the case more and more often with women involved in campaign, as a way of raising the visibility and profiles of agriculture.” Elders’ employees. “The opportunities available in agriculture are now much more “The Elders brand is iconic and as such the pink shirt stands for diverse and this opens up so many more roles. Schools and our ability, our resilience, and our contribution to the industry. colleges are including agriculture as part of their offering, There is a lot of pride in being a part of Elders and wearing the introducing children to the variety of pathways that agriculture pink shirt shows that pride.” offers,” Steph says. National Agronomy Technical Services Manager, Graham Page, Elders’ Southern Zone Wool Manager Lachie Brown says says that Maree is a role model in the industry and is continually it’s a natural progression and the industry is embracing the going above and beyond for Elders and her clients. influence and impact women are having throughout the “Maree plays a key role not just in improving the standard of whole supply chain. agronomy services in Elders’ North Zone, but in advocating for “It’s very positive to see the industry shifting its mindset. Elders improvements industry-wide. She sets a precedent for other is incredibly supportive and it’s only a matter of time before we agronomists and the industry, and their capacity to influence begin to see more women come into our wool marketing team change,” Graham says. on a national level.” The number of women in wool classer and roustabout roles has overtaken men in the past twenty years.
51 52 Directors’ Report
The directors present their report for the year ending 30 September 2017.
53 2017 Annual Report — Elders
Directors’ Report
Current Directors Results and Review of Operations The directors of Elders in office during The consolidated entity recorded a profit for the year, after the financial year and until the date of tax and non-controlling interests, of $116.0m (2016: profit this report were: of $51.6m). A review of the operations and results of the consolidated entity and its principal businesses during the Non-Executive Directors year is contained in pages 15 to 33 of this report. ——James Hutchison Ranck, Chairman ——James Andrew Jackson, Deputy Significant Changes in the State of Affairs Chairman There were no significant changes in the state of affairs of the ——Ian Wilton consolidated entity during the year not otherwise disclosed ——Robyn Clubb elsewhere in this annual report. Executive Director As announced to ASX on 23 February 2017, the Elders Mark Charles Allison, Managing Director Hybrids were realised by way of a resale on 30 March 2017. and Chief Executive Officer A further ASX announcement dated 20 April 2017 informed that Elders Limited had redeemed all Elders Hybrids and Company Secretaries effected termination of the Elders Hybrid Trust Deed. ——Peter Gordon Hastings As a result of these events, the Elders Hybrid security ——Sanjeeta Singh (ASX: ELDPA) ceased quotation. A summary of the experience, qualifications and special responsibilities Events Subsequent to Balance Date of each Director and Company There is no matter or circumstance that has arisen since Secretary is provided on pages 42 30 September 2017 which is not otherwise dealt with in this and 43 of this annual report. report or in the consolidated financial statements, that has significantly affected or may significantly affect the operations Principal Activities of Elders, the results of those operations or the state of affairs The principal activities of Elders during of Elders in subsequent financial periods. the year were: Likely Developments and Future Results (a) the provision of livestock, real estate Discussion of likely developments in the operations of the and wool agency services; consolidated entity and the expected results for those (b) the provision of services and farm operations in future financial years is included in the inputs to the rural sector; information on page 34 and 35 of this report. (c) the provision of financial products and services to rural and regional Share and Other Equity Issues During customers; the Year (d) real estate operations in both rural No ordinary shares were issued during the year. and residential markets, including property management services; Dividends and Other Equity Distributions (e) live export operations (sold in the Subsequent to year end, the Board declared a fully franked final second half of the year); ordinary dividend of 7.5 cents per share, and a fully franked special dividend of 7.5 cents per share. The final ordinary (f) feedlotting of cattle; dividend and special dividend will be paid on 15 December 2017 (g) grain marketing; and to those shareholders on Elders’ share register on the record (h) red meat supply chains in Indonesia date of 21 November 2017. The Dividend Reinvestment Plan will and China operate in respect of both the final and special dividend.
54 Directors' Report
Share Options Directors’ Interests Share options are issued to company At the date of this report, the relevant interests of the Directors executives under a long term incentive in shares and other equity securities of Elders are detailed in plan forming part of Elders’ remuneration Table 2 on page 58. structure. Information on this element of At the date of this report, there are no options on issue to the remuneration structure is provided in directors other than to the Managing Director as set out in the Remuneration Report commencing Table 2. on page 61 of this annual report. The total quantity of options (not Directors’ Meetings including performance rights disclosed Detail of the number of meetings held by the Board of Directors on page 71 of the Remuneration Report) and Board committees and the attendance at those meetings is on issue as at 30 September 2017 would provided in Table 3 on page 58. represent, if exercised, 1.49% of the Group’s issued ordinary shares. Indemnification of Officers and Auditors Details of options over unissued shares Insurance arrangements established in previous years at the date of this report are as follows: concerning officers of the consolidated entity were renewed during the period. (a) Options on Issue: All options listed in Table 1 are The consolidated entity paid an insurance premium in subject to performance conditions respect of a contract insuring each of the directors of as described on page 71 of the Elders named earlier in this report and each full time Remuneration Report. executive officer, director and secretary of Australian group entities against all liabilities and expenses arising (b) Options issued since the end as a result of work performed in their respective capacities, of the previous financial year: to the extent permitted by law. The terms of the policy No options have been issued since prohibit the disclosure of the premiums paid. the end of the previous financial year. (c) Options exercised since the end Each director and other officer has entered into a Deed of the previous financial year: of Access, Insurance and Indemnity which provides: No options have been exercised since ——that Elders will maintain an insurance policy insuring the the end of the previous financial year. officer against any liability incurred by the officer in the (d) Options lapsed since the end officer’s capacity as an officer of Elders or another group of previous financial year: entity to the maximum extent allowed by law; No options have lapsed since the ——for indemnity against liability as an officer, except to the end of the previous financial year. extent of indemnity under the insurance policy or where As disclosed in Table 11 appearing prohibited by law; and on page 76 of the Remuneration ——for access to company documents and records, subject Report, no performance rights held to undertakings as to confidentiality. by Senior Executives have lapsed since 30 September 2016. (e) Options vested since the end of previous financial year: 1,694,790 options vested on 13 November 2017 as disclosed on page 70 of the Remuneration Report.
55 2017 Annual Report — Elders
Remuneration of Directors and Senior Retail Operations Executives Elders’ retail operations are subject to state environmental regulations relating Details of the remuneration arrangements in place for to the storage, handling, transport Key Management Personnel of Elders are set out in the and sale of dangerous goods such as Remuneration Report commencing on page 61. In compiling agricultural chemicals, fertilisers and this report Elders has met the disclosure requirements poisons. Although these regulations prescribed in the Australian Accounting Standards and the are based on nationally recognised Corporations Act 2001. standards, the regulatory environment for the transporting, handling, storage, Environmental Performance Regulation sale and use of such dangerous goods, A number of Elders’ operations are subject to environmental chemicals and scheduled poisons is legislation. Such legislation is diverse and varies between complex and subject to regulations state, territory and local authorities and various regulators. imposed by each state and territory. Detail of Elders’ performance in relation to the various regulations is as follows. The majority of Elders’ retail operations are accredited under the accreditation Feedlots program operated by Agsafe. The Elders operates the Killara feedlot in Quirindi, New South program provides accreditation for Wales. Killara is subject to both state and local government premises and training and accreditation environmental legislation. for employees in the safe handling, No breaches of environmental regulations affecting Killara storage and transport of agricultural were reported during the year ended 30 September 2017 and veterinary chemicals. Agsafe or to the date of this report. provides assistance to Elders by providing appropriate training and Saleyards safety programs including a program Saleyards are subject to various state, territory and local of recognised audits. government environmental legislation and regulations, particularly relating to effluent management, dust and noise. A letter was received from the These obligations vary from state to state and generally only Environmental Protection Authority apply to saleyards above a prescribed size. Elders expects its advising that a complaint regarding saleyard operations, irrespective of their size, to abide by the fertiliser dust had been made against applicable laws and regulations. an Elders’ branch. The issue was appropriately dealt with and no No breaches of environmental regulations affecting Elders’ further action was required by the saleyards were reported during the year ended 30 September Environmental Protection Authority. 2017 or to the date of this report. No breaches of environmental regulations affecting Elders’ retail operations were reported during the year ended 30 September 2017 or to the date of this report.
56 Directors' Report
Live Export Services Non-Audit Services Prior to the divestment of its live export business, Elders was Non-audit services provided by Elders’ engaged in the export of livestock to international markets, auditor, PricewaterhouseCoopers, to namely the supply of feeder and slaughter cattle to Indonesia Elders during the financial year are and Vietnam as well as long haul live export of dairy, breeding disclosed below. Based on advice and feeder and slaughter cattle to distant markets such as received from the Audit, Risk and China and Kazakhstan. Sheep were also exported to a variety Compliance Committee the Directors of markets. are satisfied that the provision of non- All live export operations are subject to Australian Government audit services is compatible with the regulations and standards including the Australian Standards general standard of independence for on the Export of Livestock (ASEL version 2.3) which provides auditors imposed under the Corporations detailed standards on the sourcing, preparation, management Act 2001 for the following reasons: and transportation of livestock throughout the supply chain, ——all non-audit services have been until disembarkation. The ASEL also requires exporters to reviewed by the Audit, Risk and comply with state, territory and local government regulations Compliance Committee to ensure including animal welfare and environmental regulations. they do not impact on the impartiality No breaches of environmental regulations or legislation or objectivity of the auditor; and were recorded by the live export business in the year to ——the nature and scope of each type 30 September 2017 or the date of this report. of non-audit service provided means that auditor independence was not Rounding of Amounts compromised. The parent entity is a Group of the kind specified in ASIC PricewaterhouseCoopers received or Corporations (Rounding in Financial/Director’s Report) is due to receive the following amount Instrument 2016/191 issued by the Australian Securities and for the provision of non-audit services: Investments Commission. In accordance with that class order, amounts in the financial report and Directors’ report ——Other compliance and assurance have been rounded to the nearest thousand dollars unless services: $33,650 otherwise stated. A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out overleaf. This report, including the Remuneration Report commencing on page 61 is made in accordance with a resolution of Directors.
57 2017 Annual Report — Elders
Table 1 — Options over unissued shares Date Options Granted Number of Issue Price Exercise Price Option Options on issue of each option of each option Expiry Date 18/12/2014 1,694,790 nil $1.57 30/09/2019
Table 2 — Directors’ Interests No. of ordinary No. of performance shares rights and options Non-Executive Directors J H Ranck 130,000 - I Wilton 105,000 - J A Jackson 10,000 - R Clubb 3,400 -
Executive Director M C Allison 54,344 1,140,000
Table 3 — Attendance at meetings by Directors Attendance by directors at Board and Committee meetings held during the financial year is detailed below. Committee attendance is only recorded where a director is a member of the relevant committee.
Board of Directors Work Health and Safety Audit, Risk and Compliance Committee Committee Attended No. of meetings Attended No. of meetings Attended No. of meetings held during held during held during relevant period relevant period relevant period J H Ranck 14 14 2 2 6 6 J A Jackson 14 14 2 2 6 6 I Wilton 14 14 2 2 6 6 M C Allison 14 14 - - - - R Clubb 14 14 2 2 6 6
Remuneration and Human Nomination and Prudential Resources Committee Committee Attended No. of meetings Attended No. of meetings held during held during relevant period relevant period J H Ranck 6 6 5 5 J A Jackson 6 6 5 5 I Wilton 6 6 5 5 M C Allison - - 5 5 R Clubb 6 6 5 5
Hutch Ranck Mark Allison Chairman Managing Director
58 Directors' Report
Auditor’s Independence Declaration
As lead auditor for the audit of Elders Limited for the year ended 30 September 2017, I declare that to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Elders Limited and the entities it controlled during the period.
A G Forman Adelaide Partner 13 November 2017 PricewaterhouseCoopers
PricewaterhouseCoopers, ABN 52 780 433 757 Level 11, 70 Franklin Street, ADELAIDE SA 5000, GPO Box 418, ADELAIDE SA 5001 T: +61 8 8218 7000, F: +61 8 8218 7999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
59 60 Remuneration Report
61 2017 Annual Report — Elders
Remuneration Report
The Directors of Elders Limited present the Remuneration Report for the consolidated entity for the year ended 30 September 2017. The information provided in this report has been audited, unless otherwise indicated, as required by the Corporations Act 2001 (Cth) and forms part of the Directors’ Report.
Section 1 64 Key Management Personnel Section 2 65 Remuneration governance Section 3 66 Non-Executive Director remuneration Section 4 67 Managing Director & CEO and Senior Executive remuneration Section 5 73 Link between Elders’ financial performance and Executive reward Section 6 74 Managing Director & CEO and Senior Executive contract terms, loans and transactions Section 7 75 Managing Director & CEO and Senior Executive remuneration details Section 8 76 Additional statutory information
62 Remuneration Report
Key Messages A summary of key remuneration outcomes for the 2017 financial year is set out below. Our remuneration framework is designed to attract, motivate and retain talented Fixed Remuneration people by differentiating rewards based As part of the annual review of fixed remuneration across the on performance and, to create value for organisation held in November 2016 eligible KMP subsequently all stakeholders. received an increase to their fixed remuneration at an average This Remuneration Report provides rate of 3.04%, in line with market movements for FY17. shareholders with an understanding In addition, CFO, Mr Davey, received an out of cycle fixed of Elders’ remuneration policies and remuneration increase of 13% in June 2017 as approved by the link between our remuneration the Board to reflect an increase in responsibilities taking on approach and our performance, in functional oversight of Elders Fine Foods in China, PT Indonesia particular regarding Key Management and Killara Feedlots and the Internal Audit function. The Personnel (KMP). KMP includes Elders’ CFO fixed remuneration package remains within benchmark Non-Executive Directors (NEDs), the range compared with other companies with similar market Managing Director and Chief Executive capitalisation. Officer (MD & CEO), Chief Financial Officer (CFO) and those Executives who are direct reports to the MD & CEO and Variable Remuneration who manage a major revenue generating Short Term Incentive Plan business unit. KMP is determined in Elders’ strong financial performance in exceeding its FY17 EBIT accordance with the definition under the target of $60m and 20% Return on Capital as well as strong Accounting Standard AASB124 Related safety, operational and strategic performance resulted in the Party Disclosures as those persons with delivery of between target and maximum short-term incentive authority and responsibility for planning, payments to the MD & CEO and Senior Executives directing, and controlling the activities of for FY17. Elders during the financial year. Long-term incentive grant in the year The following principles underpin The MD & CEO and selected senior management were Elders’ Remuneration Policy and reward granted rights under Elders Executive Long Term Incentive frameworks, which are approved by the Plan (LTIP) in FY17. This grant has a 3-year performance period Board and applied across the business: ending 30 September 2019, with key metrics of Absolute Total Shareholder Return, Earnings per Share growth and Return on ——consider risk and reward to Capital. The LTIP is designed to focus executives on continuing appropriately align with shareholder to drive sustainable growth and shareholder return. interests; Change to Exercise Price in FY15 Options Plan ——drive sustainable long-term growth; Having regard to the dilutive impact of the capital raising ——create clear alignment between undertaken by Elders during 2016, the Board reviewed the performance and individual conditions of the 2015 grant under the LTIP and as a result the remuneration outcomes; exercise price of $1.70 was amended to $1.57. This change has ——support gender pay equity; been calculated in accordance with the formula outlined in the ASX listing rules and was made in line with the Plan Rules. ——be market competitive, and aligned to impact and accountability; Long-term incentives vesting in the year ——have sufficient flexibility to meet We believe our remuneration framework remains aligned with the changing needs of a diverse the strategy of the business and promotes long-term alignment workforce; and with shareholders. As a result the options granted in FY15 under the Long Term Incentive Plan had a three year performance ——be well-governed and prudentially period which concluded 30 September 2017. Testing against sound to protect the long-term the three performance conditions, being Elders’ Absolute Total financial interests of the business. Shareholder Return, Underlying Earnings Before Interest and Tax and Return on Capital resulted in 100% vesting. Further details on the vesting are outlined on page 69.
63 2017 Annual Report — Elders
Managing Director and CEO and Senior Executive remuneration outcomes for 2017 Table 1 below sets out certain items of remuneration paid or payable to the MD & CEO and Senior Executives in respect of the 2017 financial year. The information in Table 1 is unaudited and is different from and additional to that required by Accounting Standards and statutory requirements. Table 10 on page 75 provides the audited remuneration disclosures as required under Accounting Standards and statutory requirements. Elders believes the information provided in Table 1 is useful to investors as it provides a simple overview of the remuneration paid or payable to the MD & CEO and Senior Executives, and is consistent with the Productivity Commission’s recommendation in its report on Executive Remuneration in Australia. Table 1 includes information on base salary, short-term incentive (STI) and long-term incentive (LTI), superannuation, other monetary and non-monetary benefits and termination benefits identical to that contained in Table 10, but omits the information on the issue of shares, share rights and options and long-term payments contained in Table 10. Additionally, Table 1 provides information on LTI based on rights vesting or options exercised during the financial year, which is not provided in Table 10 Table 1 — Remuneration outcomes for 2017 (unaudited and non-IFRS) $ Base STI1 LTI 2 Super- Other Other (non- Termination Total Salary annuation (monetary) monetary)3 benefits4
M C Allison MD & CEO 839,082 864,075 - 19,724 - - - 1,722,881
R I Davey CFO 458,721 150,000 - 19,724 - - - 628,445
J H Cornish GM Zone West 343,845 110,000 - 19,724 - 1,200 - 474,768
G J Dunne GM Zone North 366,338 190,000 - 19,724 - 4,486 - 580,548
M L Hunt GM Zone South 368,770 190,000 - 19,724 - 39,816 - 618,310
1 STI that will be paid for performance in the 2017 financial year. 2 Value of any performance rights that vested during the 2017 financial year based on the closing share price on the date of vesting, and options that were exercised during the 2017 financial year based on the difference between the exercise price and the closing share price on the date of exercise. This figure does not represent the value of rights or options granted during the 2017 financial year. 3 Provision of leased car parking and company leased tool of trade vehicle. 4 These benefits comply with Part 2D.2 of the Corporations Act 2001 (Cth). Section 1 — Key Management Personnel Key Management Personnel for the purposes of this report include the following persons who were Non-Executive Directors, MD & CEO and Senior Executives during the financial year: Table 2 — Key Management Personnel Name Position held Period held in 2017 (if not full year) Non-Executive Directors J H Ranck Chairman
R Clubb Director
J A Jackson Director
I Wilton Director
MD & CEO and Senior Executives M C Allison Managing Director and CEO
R I Davey Chief Financial Officer
J H Cornish Zone General Manager West
G J Dunne Zone General Manager North
M L Hunt Zone General Manager South
64 Remuneration Report
Section 2 — Remuneration Governance C. Independent remuneration advice A. Role of the Board and the Remuneration The Committee is briefed by and Human Resources Committee management, however, the Committee The Remuneration and Human Resources Committee makes all decisions free of the influence (Committee) assists the Board in ensuring that Elders of management. establishes and maintains remuneration strategies and policies aligned with Elders’ overall objectives and in accordance with Further to the management briefings, the practice set out in the ASX Corporate Governance Council to assist in its decision-making, the Principles and Recommendations. The Board has delegated Committee may, from time to time, seek oversight of Elders’ remuneration policies and practices independent advice from remuneration to the Committee. consultants, and in so doing will directly engage with the consultant without On an annual basis the Board reviews and approves the management involvement. performance and remuneration plans and outcomes for the MD & CEO on the recommendation of the Chairman and the In the year ending 30 September Committee. The plans and outcomes for the MD & CEO’s 2017, the Committee approved the direct reports are reviewed and approved annually by the engagement of Korn Ferry Hay Group Committee on the recommendation of the MD & CEO, and to provide market remuneration the MD & CEO approves the plans and outcomes for positions information for the MD & CEO role. reporting to his direct reports. The Committee reviews the key Total fees paid to Korn Ferry Hay Group elements of Senior Executive employment contracts as well were $11,200 (excluding GST). as the MD & CEO’s recommendations for equity incentives Korn Ferry Hay Group has confirmed to Senior Executives and other senior managers in Elders. that any remuneration recommendations The Committee also reviews major remuneration policies have been made free from undue and programs applying across Elders. influence by members of the KMP. The role and responsibilities of the Committee are set out The agreement for the provision of in the Corporate Governance Statement which along with remuneration consulting services was the Committee’s Charter is published on Elders’ website executed by the Chairman and the at elders.com.au. report containing the remuneration recommendations was provided by The Committee is comprised entirely of Non-Executive Korn Ferry Hay Group directly to Directors. the chair of the Remuneration and Human Resources Committee. As a B. Key Committee activities consequence, the Board is satisfied During 2017, the Committee met on five occasions. The that the recommendations were made Committee has a strong focus on the relationship between free from undue influence from any business performance, risk management and remuneration members of KMP. with the following activities occurring during the year: ——establishing performance objectives for the organisation, and setting KPIs for the MD & CEO ——determining reward outcomes for the MD & CEO and review of the outcomes for Executive Committee ——review and approval of short-term and long-term incentive plans ——review of talent and succession plans for the Executive Committee ——monitoring of progress toward diversity objectives ——review of culture and employee effectiveness ——review of capability programs, including leadership and technical development ——monitoring workplace behaviour, and annual review of human resources policies, processes and guidelines.
65 2017 Annual Report — Elders
Section 3 — Non- B. Non-Executive Director remuneration in 2017 Executive Director Total fees for the financial year ended 30 September 2017 remain well within the aggregate fee limit of $1,200,000 per annum, approved by the Board following Remuneration Elders’ 2013 Annual General Meeting. Statutory superannuation guarantee A. Remuneration Framework contributions are excluded from the aggregate fee limit. & Policy Each Non-Executive Director was entitled to an annual base fee of $100,000, except Non-Executive Directors are the Chairman who was entitled to a total annual composite fee including committee remunerated by way of fees in the form fees of $240,000. All amounts exclude superannuation, which is paid up to the of cash and superannuation, and in maximum contribution base in line with Superannuation Guarantee legislation. accordance with Recommendation 8.2 of During the financial year ended 30 September 2017, as compensation for time spent the ASX Corporate Governance Council on committee business, the following fees applied: Principles and Recommendations. ——Each member of the Audit, Risk and Compliance Committee was entitled The MD & CEO and Senior Executives to $16,000 per annum, except for the Committee Chairman who was entitled do not receive directors’ fees. to $30,000 per annum to reflect the significant workload associated with Non-Executive Directors do not this position. participate in Elders’ cash or equity ——Each member of the Work Health and Safety Committee was entitled to $10,000 incentive plans and do not receive per annum. retirement benefits other than ——Each member of the Remuneration and Human Resources Committee was superannuation contributions disclosed entitled to $10,000 per annum, except for the Committee Chairman who was in this report. entitled to $15,000 per annum to reflect the workload associated with the position. Non-Executive Directors have formal ——Members of the Nomination and Prudential Committee receive no further fees letters of appointment with Elders. for membership of this Committee. Length of tenure is governed by Elders’ Actual Committee fees paid are provided as “Board Committee Fees” in Table 3 Constitution and the ASX Limited Listing below. The base Board fee has remained unchanged since 2014. Rules, which provides that all Non- Executive Directors are subject to re- Table 3 — Non-Executive Director remuneration details election by shareholders in the manner Short-term payments Post Total set out in the Corporate Governance employment Statement published at elders.com.au. Base Board Fee Board Super- Non-Executive Director fees are Committee Fees annuation reviewed by the Board on an annual basis, taking into consideration the J H Ranck 2017 240,000 - 19,724 259,724 accountability and time commitment 2016 240,000 - 19,385 259,385 of each director, supported, where appropriate and necessary, by advice R Clubb 2017 100,000 36,000 12,920 148,920 from external remuneration consultants. 2016 100,000 36,000 12,920 148,920
The Board believes Elders’ Non- J A 2017 100,000 41,000 13,395 154,395 Executive Directors should own Jackson securities in Elders to further align their 2016 100,000 41,000 13,395 154,395 interests with the interests of other I Wilton 2017 100,000 50,000 14,250 164,250 shareholders. Details of Non-Executive Directors’ shareholdings in Elders can be 2016 100,000 50,000 14,250 164,250 found in Table 12 of this Report. Total 2017 540,000 127,000 60,289 727,289
2016 540,000 127,000 59,950 726,950
66 Remuneration Report
Section 4 — Managing A description of each component is set out below. Remuneration packages are structured to ensure a portion of an executive’s Director & Chief reward depends on meeting individual, business unit and Executive Officer Elders’ targets and objectives, including maximising returns and Senior Executive for shareholders. Remuneration Chart 1 — Remuneration structure
A. Remuneration framework CEO Senior Executives & policy The remuneration for executives is focused on a range of criteria, including: 25% ——appropriate reward for their roles 33% 33% and responsibilities; 50% ——balancing fixed and at-risk remuneration components with an appropriate balance between short 25% and long-term incentives within the at-risk component; 33% ——performance measures reflecting long-term drivers of shareholder TFR STI LTI value; ——paying for performance, where The above assumes the at-risk remuneration components are at superior or upper quartile their maximum, and represents Elders’ intended policy in respect remuneration is only paid for of remuneration structure. demonstrable superior performance; and B. Total fixed remuneration ——remuneration is competitive when Total Fixed Remuneration (TFR) is made up of base salary, compared to both internal and superannuation and any other benefits (including Fringe Benefits external relativities. Tax on those benefits) that the executive has nominated to receive as part of his or her package. These benefits may include motor The remuneration structure has been vehicle leases, car parking and any additional superannuation designed to support the Board’s contributions beyond the statutory maximum. remuneration policy. Executive remuneration is made up of three The level of TFR is set by reference to market activity for like elements: positions and is determined by the level of knowledge required to perform the position, the problem solving complexities of the ——Total fixed remuneration (TFR) position, level of autonomy to make decisions and the particular to provide market competitive capabilities, talents and experience the individual brings to the salary including superannuation position. and non-monetary benefits ——Short-term incentives (STI) TFR is reviewed annually and is adjusted according to market to reward for in-year performance at relativity, Elders’ overall performance and the executive’s Elders’ overall and business unit level performance over the previous year, as assessed through Elders’ Performance and Development Planning (PDP). PDP ——Long-term incentives (LTI) assesses employee performance against a number of agreed key to align with longer term strategy performance indicators, including measures for safety, financial and shareholder value. and operational performance, key relationships and efficiency and growth.
67 2017 Annual Report — Elders
C. Short-term incentive The key features of the short-term incentive plan applying to the MD & CEO and Senior Executives during the year are set out in the table below: Table 4 — Short-term incentive plan MD & CEO Senior Executives Maximum STI opportunity 100% of TFR 50% of TFR as % of TFR
Performance measure(s) 45% of the MD & CEO’s STI is based on quantitative Senior Executives are eligible for an STI if Elders financial performance including Underlying Earnings achieves threshold financial performance hurdles Before Interest and Tax (EBIT) and Return on Capital including Underlying EBIT and ROC. (ROC) targets. The STI is based on Elders’ overall, business unit and 10% of the STI is based on driving significant individual performance against KPIs set for: progress in achieving an injury free workplace. ——Safety 10% of the STI is based on employee effectiveness ——Financial and operational performance and customer satisfaction. (including EBIT and ROC) 35% of the STI is based on qualitative performance ——Key relationships (people and customers) regarding creating value through the delivery of key ——Efficiency and growth (Eight Point Plan milestones of the Eight Point Plan. milestones).
Governance Assessment of the MD & CEO’s performance against Assessment of performance against the above the relevant KPIs is determined by the Remuneration measures and individual KPIs is determined by the and Human Resources Committee (Committee) with MD & CEO with recommendation for STI payment recommendation for STI payment referred to the referred to the Committee and then to the Board Board for approval. for approval.
Exercise of discretion The MD & CEO in conjunction with the Chairman, may recommend discretionary bonus payments to executives (except himself) for approval by the Committee.
Service condition Any STI payable to executives who become eligible to participate in the STI Plan during the course of the year, either through joining Elders or being promoted within Elders, will be pro-rated accordingly.
Payment Payments are made in cash or elected to be paid as shares; Senior Executives may elect to salary sacrifice to acquire Elders’ shares via the Deferred Employee Share Plan.
Clawback Elders may recover payments made, where the STI was calculated on financial results due to: ——a material non-compliance with any financial reporting requirement; or ——misconduct of any employees, contractors or advisers; and as a result, of which the actual metrics and outcomes used to determine the STI were incorrect, and as such a lower payment would have been made based on the restated results.
Table 5 — STI outcomes for 2017 All STI payments for 2017 performance were paid according to plan performance measures. The following table outlines the KMP participants who received an STI payment in 2017:
Maximum Opportunity Awarded Forfeited $ % % M C Allison 864,075 100% 0%
R I Davey 260,000 58% 42%
J H Cornish 183,251 60% 40%
G J Dunne 194,896 97% 3%
M L Hunt 196,125 97% 3%
68 Remuneration Report
D. Long-term incentive The Board considers, in accordance with generally accepted remuneration practices in Australia, that equity-based long-term incentives are integral in aligning executive interests with Elders’ longer term strategy and the interests of shareholders. As such, Elders currently offers long-term incentives to the MD & CEO and selected senior management. These offers are made under Elders Executive Incentive Plan (Plan), adopted in December 2014. Participation remains at the Board’s discretion. Subject to the ASX Listing Rules, under these Rules the Board has discretion to make adjustments to one or more of: ——the exercise price of the options; ——the number of options/rights; ——the number of shares received upon exercise of options/vesting of rights; and ——the performance conditions, in the event of a corporate restructuring, major transaction or capital event or to prevent any unintended consequences. a — Finalised long-term incentive – 2015 grant The 3 year performance period of the FY15 options granted under the Long Term Incentive Plan concluded on 30 September 2017. The options were split into three tranches, each carrying a different performance condition. The testing resulted in 100% of the options vesting for each tranche with the results as follows:
% of total grant Performance measures Outcome of testing Tranche 1 – Total Shareholder Return (TSR) 50% Based on Elders’ average annual compound TSR over the three year performance Elders’ 10 trading day VWAP as period 1 October 2014 ending on 30 September 2017. at 30 September was $4.697 TSR Options will be subject to a target goal and a stretch goal. The target and stretch being significantly higher than goal that apply over the performance period are as follows: the stretch hurdle of $2.94
Target Stretch Elders’ Absolute 12% average annual 20% average annual TSR over the compound TSR compound TSR performance The 10 trading day volume The 10 trading day VWAP (up period weighted average price to and including the last day (VWAP) (up to and of the performance period) including the last day of the must be at least $2.94 at
performance period) must be the end of the performance at least $2.39 at the end of period. the performance period.
The % of TSR options that will vest is determined as follows: Absolute TSR over performance % of Options in tranche that vest period Less than target Nil
Target 1 50%
Between target and stretch2 50-100% on a straight line sliding scale
Stretch2 and above 100%
1 Target =12% average annual compound TSR 2 Stretch = 20% average annual compound TSR Absolute TSR will be measured using opening and closing share prices determined as follows: ——the opening share price value will be $1.70 ——the closing share price value will be based on the 10 trading day Volume Weighted Average Price (VWAP) up to and including the last day of the performance period; and ——dividend paid
69 2017 Annual Report — Elders
% of total grant Performance measures Outcome of testing Tranche 2 – Earnings Before Interest and Tax (EBIT) 25% EBIT options will vest in full if Underlying EBIT is greater than or equal to $60 million Elders’ reported underlying for the financial year ending 30 September 2017. EBIT as at 30 September 2017 was $70.4m being higher than $60m performance condition
Tranche 3 – Return on Capital (ROC) 25% ROC options will vest in full if ROC is greater than or equal to 20% for the financial Elders’ return on capital as year ending 30 September 2017. at 30 September 2017 was 26.8% being higher than 20% performance condition
The total number of vested options under the 2015 grant is 1,694,790, with 1,210,000 of these vesting to the MD & CEO and Senior Executives and the remainder to other senior manager participants. Individual vesting amounts are outlined in Table 11. Vested options become exercisable on the first day on or after vesting that the share price is greater than the Exercise Price. For this purpose, the relevant share price is the market price at the close of trade. For each option that vests and is exercised, an exercise price of $1.57 per option is payable by the participant in return for one fully paid ordinary share in Elders. Options which have not been exercised by the expiry date of 30 September 2019 will lapse. b — Current long-term incentive – 2016 and 2017 grants The CEO & MD and selected senior management were offered grants under the Long Term Incentive Plan in the current and prior years each with a 3 year performance periods as follows: ——FY16 Rights grant – to be tested following 30 September 2018; and ——FY17 Rights grant – to be tested following 30 September 2019 Details of the actual grant are outlined in Table 11. The rights granted in the current year to the CEO & MD were approved by shareholders at Elders’ AGM held on 16 December 2016. Following this the Board then approved a grant of performance rights to selected senior management on 16 December 2016. The performance measures of the 2017 grant are in accordance with the 2016 grant being Total Shareholder Return (TSR), Earnings Per Share (EPS) and Return on Capital (ROC) being appropriate measures of shareholder return and Elders’ financial performance in line with Elders’ three-year strategic plan. KMP are not permitted to deal in Elders’ securities without prior permission from Elders and are only permitted to trade during trading windows and are required to disclose all dealings on an annual basis. The measures are designed principally to manage insider trading risk, and align the interests of KMP with Elders’ security holders generally. The current LTIPs and equity participation plans are summarised within the table adjacent.
70 Remuneration Report
Table 6 — Long Term Incentive Plan detail MD & CEO Senior Executives Maximum LTI 100% of TFR 50% of TFR opportunity as % of TFR
As at 30 September 2017 No of rights outstanding and no of participants Grant date: 17-Dec-15 260,000 Rights 1 participant 600,000 Rights 12 participants 16-Dec-16 280,000 Rights 1 participant 595,000 Rights 11 participants
Performance period: 17-Dec-15 Three years – 1 October 2015 to 30 September 2018
16-Dec-16 Three years – 1 October 2016 to 30 September 2019
Performance conditions: 17-Dec-15 The performance rights will be split into three tranches, each carrying a different performance condition
Tranche Performance Condition % of total grant 1 Absolute Total Shareholder Return (TSR) 50%
2 Earnings per Share (EPS) growth 25%
3 Return on Capital (ROC) 25%
17-Dec-16 The performance conditions of this grant mirror those of the 17-Dec-15 grant.
Performance measures and vesting 17-Dec-15 Tranche 1 – Absolute TSR Performance Rights 50% of rights vest subject to an absolute TSR performance condition. The absolute TSR performance condition is tested based on Elders’ average annual compound TSR over the three-year performance period 1 October 2015 ending on 30 September 2018. The % of TSR options that will vest is determined as follows:
Absolute TSR over performance period % of Options in tranche that vest Less than target Nil
Target 1 50%
Between target and stretch2 50-100% on a straight line sliding scale
Stretch2 and above 100%
1 Target = 12% average annual compound TSR 2 Stretch = 20% average annual compound TSR Absolute TSR will be measured using opening and closing share prices determined as follows: ——the opening share price value will be $3.965, being the 5 trading day VWAP up to and including 30 September 2015; and ——the closing share price value will be based on the 5 trading day VWAP up to and including the last day of the performance period, 30 September 2018. Tranche 2 – EPS Growth Performance Rights 25% of rights vest in full if Earnings Per Share Compound Annual Growth Rate (EPS CAGR) is greater than or equal to 15% for the performance period. Tranche 3 – ROC Performance Rights 25% of rights vest in full if ROC is greater than or equal to 20% for the financial year ending 30 September 2018. In addition to the performance conditions above, performance rights will only vest if the share price on the vesting date is greater than or equal to the 5 trading day VWAP up to and including 30 September 2015 ($3.833). Upon vesting of performance rights one fully paid share in Elders will be allocated for each performance right.
71 2017 Annual Report — Elders
MD & CEO Senior Executives 17-Dec-16 Tranche 1 – Absolute TSR Performance Rights 50% of rights vest subject to an absolute TSR performance condition. The absolute TSR performance condition is tested based on Elders’ average annual compound TSR over the three-year performance period 1 October 2016 ending on 30 September 2019. The % of TSR options that will vest is determined as follows:
Absolute TSR over performance period % of Options in tranche that vest Less than target Nil
Target 1 50%
Between target and stretch2 50-100% on a straight line sliding scale
Stretch2 and above 100%
1 Target = 12% average annual compound TSR 2 Stretch = 20% average annual compound TSR Absolute TSR will be measured using opening and closing share prices determined as follows: ——the opening share price value will be $3.8426, being the 5 trading day VWAP up to and including 30 September 2016; and ——the closing share price value will be based on the 5 trading day VWAP up to and including the last day of the performance period, 30 September 2019. Tranche 2 – EPS Growth Performance Rights 25% of rights vest in full if Earnings Per Share Compound Annual Growth Rate (EPS CAGR) is greater than or equal to 15% for the performance period.
Tranche 3 – ROC Performance Rights 25% of rights vest in full if ROC is greater than or equal to 20% for the financial year ending 30 September 2019. In addition to the performance conditions above, performance rights will only vest if the share price on the vesting date is greater than or equal to the 5 trading day VWAP up to and including 30 September 2016 ($3.8426). Upon vesting of performance rights one fully paid share in Elders will be allocated for each performance right.
Performance Testing of the performance conditions will occur once the results for the financial year ended (30 September) have testing been approved by the Board. There will be no re-testing of performance.
Table 7 — Other equity schemes in which one or more KMP participate Name Description Eligibility Number of Number of shares of Plan Criteria participants as at outstanding as at 30 Sept 30 Sept 30 Sept 30 Sept 2016 2017 2016 2017 Deferred This plan enables participants to salary sacrifice All 125 141 159,165 185,851 Employee remuneration of up to $5,000 to acquire restricted permanent Share Plan shares. Tax can be deferred up to 7 years. Elders makes employees. (DESP) no contribution to this plan other than funding the cost of administration. There are no further performance or service conditions once shares are purchased.
Elders This plan was designed to provide an equity participation The ELSP 597 0 41,603 0 Loan opportunity for all eligible employees when offered by was Share Plan Elders. Shares were provided and paid for by way of a suspended in (ELSP) non-recourse, interest-free loan. Dividends are used to 2009. repay the loan. Shares vest three years after issue once loan is fully repaid. There are no performance conditions once issued. No shares were issued under the ELSP during the financial year. In FY17 the Board approved the wind-up of this plan with all participants agreeing to forfeit and surrender all interests in their shares under the plan.
Note: No KMP participated in the DESP in 2016 or 2017. M.Allison and G.Dunne participated in previous DESP offers and currently hold 1,685 and 5,768 shares respectively under this Plan (with no change to holdings compared to the same time last year, 30 September 2016).
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Section 5 — Link Between Elders’ Financial Performance and Executive Reward STI payments are awarded to executives on achievement of a range of financial and non-financial performance targets (see Table 4). Under the LTI grants issued 18 December 2014, 17 December 2015 and 16 December 2016 the performance conditions as outlined in Table 6 include absolute Total Shareholder Return (TSR), Earnings Before Interest and Tax (EBIT), Earnings Per Share (EPS) and Return on Capital (ROC). The following table shows Elders’ performance in relation to a number of financial and operational performance measures over a five-year period. Table 8 — Elders’ performance Performance measure ($ millions) 2013 2014 2015 2016 2017 Sales revenue 1,417.2 1,427.7 1,502.0 1,519.3 1,603.1
Underlying EBIT (21.5) 22.3 40.5 56.1 70.4
Statutory profit (505.3) 3.0 38.3 51.6 116.0
Return on Capital based on underlying earnings n/a 11.9% 21.9% 28.1% 26.8%
Cashflow from operating activities (81.6) 15.1 (5.3) 48.7 81.6
Note: Details of KMP STI outcomes for 2017 are provided on page 68. Chart 2 — Absolute TSR % The following chart shows Elders’ TSR performance over the last five years against the ASX/S&P 200 Accumulation Index. 150%
100% R %
S 50% e T t -56.0% -0.7% ol u
s 0% 24.3% 87.2% 5.9% 118.3% 4.8% 13.2% 25.3% 9.2% b A
-50%
-100% 2013 2014 2015 2016 2017
Elders ASX200 Source: Thomson Reuters
Dividend history No dividends were declared or paid (interim or final) over the five years from 2013 to 2016. A final dividend and special dividend of 7.5 cents each will be paid for FY17. Chart 3 — Elders five year share price history
6
5
4
3
2
1 Source: Thomson Reuters July ‘17 July ‘15 July ‘13 July ‘14 July ‘16 May ‘17 May ‘15 May ‘13 May ‘14 May ‘16 April ‘17 June ‘17 April ‘15 April ‘13 April ‘14 April ‘16 June ‘15 June ‘13 June ‘14 June ‘16 March ’17 March ‘15 March ‘13 March ‘14 March ‘16 August ‘17 August ‘15 August ‘13 August ‘14 August ‘16 January ‘17 January ‘15 January ‘13 January ‘14 January ‘16 October ‘12 October ‘15 October ‘13 October ‘14 October ‘16 February ‘17 February ‘15 February ‘13 February ‘14 February ‘16 December ‘12 December ‘15 December ‘13 November ‘12 December ‘14 December ‘16 November ‘15 November ‘13 November ‘14 November ‘16 September ‘17 September ‘15 September ‘13 September ‘14 September ‘16
Note: In December 2014, Elders consolidated shares from 10 to 1. To enable a proper comparison, the share price in the above graph reflects that consolidation for the full year period.
73 2017 Annual Report — Elders
Section 6 — Managing Director & CEO and Senior Executive Contract Terms, Loans and Transactions A. Contractual arrangements with KMP In 2017 Elders had employment contracts with the MD & CEO and Senior Executives. Details of the employment contracts are set out in the table below. Table 9 — Contractual arrangements Component MD & CEO Senior Executives Contract Duration Ongoing until terminated by either party
Notice (without cause) initiated by: Company 12 months 6 months Individual 6 months 3 months
Payment in lieu of notice may be made equivalent to the remuneration the MD & CEO and Senior Executive would have received over the notice period. Payment may be awarded under a short-term or long-term incentive plan in accordance with plan rules.
Notice for Serious Misconduct Elders may terminate immediately. No payment in lieu of notice or other termination payments are payable under the employment agreement.
Redundancy Not applicable Due to genuine redundancy, as defined by theFair Work Act 2010, the Senior Executive is entitled to a retrenchment payment in accordance with Elders’ policy. This payment is also subject to the rules and limitations specified in the Corporations Act 2001 and Corporations Regulations.
Change of Control Not applicable In the event of a Change of Control or Disposal of Business resulting in a material diminution in the roles and responsibility of the Senior Executive, the Senior Executive may terminate their contact on three months’ notice. If this occurs, Elders will pay the Senior Executive the equivalent of up to 12 months TFR.
B. Other transactions with KMP There are no loans to KMP outstanding in the current year. In the prior year it was only those loans held under the ELSP in Table 7 of which G.Dunne, J.Cornish and R.Davey participated holding 595, 338 and 258 shares respectively. From time to time, sales and purchases occur during the year between subsidiaries of the Group and entities that certain directors of Elders have direct or indirect control over. These transactions are conducted on the same terms and conditions as those entered into by other Elders employees or customers on an arm’s length basis and are trivial or domestic in nature.
74 Remuneration Report
Section 7 — Managing Director & CEO and Senior Executive Remuneration Details Table 10 — Details of MD & CEO and Senior Executive remuneration for the 2016 and 2017 financial years Short-term payments Post- Share-based payments Long- employ- term pay- ment ments Base salary STI Other1 Super- Options Share Long Termination Total % perfor- annuation Rights Service benefits2 mance- Leave related3 M C 2017 839,082 864,075 - 19,724 203,700 558,200 16,999 - 2,501,780 65% Allison 2016 817,989 632,250 - 19,359 125,700 296,400 3,407 - 1,895,105 56%
R I 2017 458,721 150,000 - 19,724 50,925 150,125 33,585 - 863,080 41% Davey 2016 431,566 85,000 - 19,385 31,425 72,101 22,295 - 661,772 28%
J H 2017 343,845 110,000 1,200 19,724 40,740 115,300 5,898 - 636,707 42% Cornish 2016 332,944 90,000 1,232 19,385 25,140 53,003 15,754 - 537,458 31%
G J 2017 366,338 190,000 4,486 19,724 44,135 120,100 8,993 - 753,776 47% Dunne 2016 353,319 100,000 4,358 19,385 27,235 57,803 13,260 - 575,360 32%
C C 2017 ------Hall4 2016 329,279 - 19,454 19,385 25,140 57,600 (1,170) 221,735 671,423 12%
M L 2017 368,770 190,000 39,816 19,724 44,135 120,100 5,004 - 787,549 45% Hunt 2016 355,662 100,000 33,263 19,385 27,235 57,600 6,068 - 599,213 31%
Total 2017 2,376,756 1,504,075 45,502 98,620 383,635 1,063,825 70,479 - 5,542,892
2016 2,620,759 1,007,250 58,307 116,284 261,875 594,507 59,614 221,735 4,940,330
1 Comprising the provision of leased car parking (Cornish, Dunne, Hall, Hunt), company leased vehicle (Hall and Hunt). 2 These benefits, which comprise redundancy payments under Elders’ redundancy policy and payments in lieu of notice, comply with Part 2D.2 of the Corporations Act 2001 (Cth). 3 Performance related remuneration consists of STI and share rights and options as a percentage of total remuneration. Share options are those disclosed in Table 11 and share rights includes performance rights disclosed in Table 11. 4 C. Hall ceased employment on 16 September 2016.
75 2017 Annual Report — Elders
Section 8 — Additional Statutory Information Table 11 — Details of MD & CEO and Senior Executive current long-term incentive grants KMP Balance Granted Vesting Vested Lapsed Balance Expensed Fair Value at Rights 1 Grant at Start date at End of at End of grant date maximum Date of Period Period Period value yet to vest2 No. No. No. % No. % No. $ $ $ M C Allison 18-Dec-14 600,000 - 13-Nov-17 600,000 100% - - - 203,700 377,100 n/a
17-Dec-15 260,000 Nov-18 - - - - 260,000 296,400 889,200 296,400
16-Dec-16 - 280,000 Nov-19 - - - - 280,000 261,800 785,400 523,600
860,000 280,000 - 600,000 - - - 540,000 761,900 2,051,700 820,000
R I Davey 18-Dec-14 150,000 - 13-Nov-17 150,000 100% - - - 50,925 94,275 n/a
17-Dec-15 75,000 - Nov-18 - - - - 75,000 72,000 216,000 72,000
16-Dec-16 - 75,000 Nov-19 - - - - 75,000 78,125 234,375 156,375
225,000 75,000 150,000 - - - 150,000 201,050 544,650 228,375
J H Cornish 18-Dec-14 120,000 - 13-Nov-17 120,000 100% - - - 40,740 75,420 n/a
17-Dec-15 55,000 - Nov-18 - - - - 55,000 52,800 158,400 52,800
16-Dec-16 - 60,000 Nov-19 - - - - 60,000 62,500 187,500 125,000
175,000 60,000 120,000 - - - 115,000 156,040 421,320 177,800
G J Dunne 18-Dec-14 130,000 - 13-Nov-17 130,000 100% - - - 41,135 81,705 n/a
17-Dec-15 60,000 - Nov-18 - - - - 60,000 57,600 172,800 57,600
16-Dec-16 - 60,000 Nov-19 - - - - 60,000 62,500 187,500 125,000
190,000 60,000 130,000 - - - 120,000 164,235 442,005 182,600
C C Hall3 18-Dec-14 80,000 - 13-Nov-17 80,000 100% - - - - 75,240 n/a
17-Dec-15 20,000 - Nov-18 - - - - 20,000 - 172,800 -
100,000 - Nov-19 80,000 - - - 20,000 - 248,220 -
M L Hunt 18-Dec-14 130,000 - 13-Nov-17 130,000 100% - - - 44,135 81,705 n/a
17-Dec-15 60,000 - Nov-18 - - - - 60,000 57,600 172,800 57,600
16-Dec-16 - 60,000 Nov-19 - - - - 60,000 62,500 187,500 125,000
190,000 60,000 130,000 - - - 120,000 164,235 442,005 182,600
1 Fair value is used to calculate the value of performance options when granted. The fair value at Grant Date is independently determined using Monte Carlo simulation techniques which take into account the exercise price, the term of the rights, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the options. 2 The maximum value of the performance rights yet to vest has been determined as the fair value amount at grant date that is yet to be expensed. The minimum value of deferred shares yet to vest is nil, as the shares will be forfeited if the vesting conditions are not met. 3 C.Hall ceased employment on 16 September 2016 however a percentage of his long-term incentive grants continued on foot.
76 Remuneration Report
Note: The fair value per option and performance right at grant date is as follows, with the grant date differing for the MD & CEO and Senior Executive grant in 2015 and 2016, resulting in a different fair value. MD & CEO Grant Senior Executive Grant Options Tranche 1 $0.50 18 December 2014 Tranche 2 & 3 $0.757 Performance Rights Tranche 1 $2.260 Tranche 1 $1.640 18 December 2015 Tranche 2 & 3 $4.580 Tranche 2 & 3 $4.120 Performance Rights Tranche 1 $1.630 Tranche 1 $1.940 18 December 2016 Tranche 2 & 3 $3.980 Tranche 2 & 3 $4.310
Table 12 — KMP shareholdings Shares held at Shares acquired Shares acquired Other shares Balance of shares start of year during the year as during the year acquired (disposed held at end of part of remuneration through the vesting of) during the year financial period of LTI Non-Executive Directors J H Ranck 2017 125,000 - - 5,000 130,000
2016 100,000 - - 25,000 125,000
R Clubb 2017 1,200 - - 2,200 3,400
2016 - - - 1,200 1,200
J A Jackson 2017 37,500 - - (27,500) 10,000
2016 30,000 - - 7,500 37,500
I Wilton 2017 100,000 - - 5,000 105,000
2016 80,000 - - 20,000 100,000
MD & CEO and Senior Executives M C Allison 2017 22,107 - - 32,237 54,344
2016 17,685 - - 4,422 22,107
R I Davey 2017 2,008 - - (258) 1,750
2016 258 - 1,750 - 2,008
J H Cornish 2017 29,528 - - (338) 29,190
2016 26,028 - 3,500 - 29,528
G J Dunne 2017 44,054 - - (595) 43,459
2016 40,554 - 3,500 - 44,054
C C Hall1 2017 n/a n/a n/a n/a n/a
2016 - - - - -
M L Hunt 2017 - - - - -
2016 - - - - -
Total 2017 361,397 - - 15,746 377,143
2016 294,525 - 8,750 58,122 361,397
1 C.Hall ceased employment on 16 September 2016, balance is at date of cessation. Note: No other changes occurred during the year. None of the shares above are held nominally by the Non-Executive Directors or MD & CEO and Senior Executives
77 78 Elders Limited Annual Financial Report
For the year ending 30 September 2017
79 2017 Annual Report — Elders
Elders Limited Annual Financial Report
30 September 2017
Consolidated Statement of Comprehensive Income 81 21 Cash Flow Statement Reconciliation 104 Consolidated Statement of Financial Position 82 22 Expenditure Commitments 105 Consolidated Statement of Cash Flows 83 23 Contingent Liabilities 105 Consolidated Statement of Changes in Equity 84 24 Segment Information 105 25 Auditors Remuneration 107 Notes to the Consolidated Financial Statements 26 Investments in Controlled Entities 108 1 Corporate Information 85 27 Key Management Personnel 111 2 Summary of Significant Accounting Policies 85 28 Share Based Payment Plans 111 3 Significant Accounting Judgements, 92 29 Related Party Disclosures 111 Estimates and Assumptions 30 Earnings Per Share 112 4 Revenue and Expenses 93 31 Financial Instruments 113 5 Income Tax 94 32 Business Combinations – Changes in the Composition 117 6 Receivables 96 of the Entity 7 Biological Assets 96 33 Discontinued Operations 118 8 Inventory 97 34 Parent Entity 119 9 Other Financial Assets 97 35 Subsequent Events 119 10 Equity Accounted Investments 98 Directors’ Declaration 120 11 Property, Plant and Equipment 99 Auditor’s Report 121 12 Intangibles 100 13 Trade and Other Payables 101 14 Interest Bearing Loans and Borrowings 101 15 Provisions 102 16 Contributed Equity 102 17 Hybrid Equity 102 18 Reserves 103 19 Retained Earnings 103 20 Dividends 104
80 Annual Financial Report CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 September 2017
2017 2016 Note $000 $000 Continuing operations Sales revenue 4 1,603,137 1,519,336 Cost of sales (1,269,080) (1,211,970) Gross profit from continuing operations 334,057 307,366 Equity accounted profits 10 5,411 861 Distribution expenses (221,846) (213,142) Administrative expenses (47,186) (38,954) Finance costs 4 (7,265) (9,343) Other items of income/(expense) 4 55,001 (1,226) Profit from continuing operations before income tax expense 118,172 45,562 Income tax (expense)/benefit 5 (4,137) 19,403 Profit from continuing operations after income tax expense 114,035 64,965 Net profit/(loss) of discontinued operations, net of tax 33 4,536 (10,726) Net profit for the period 118,571 54,239
Items that may be reclassified to profit and loss Exchange differences on translation of foreign operations (1,211) (818) Other comprehensive loss for the period, net of tax (1,211) (818)
Total comprehensive income for the period 117,360 53,421
Profit for the period is attributable to: Non-controlling interest 2,576 2,670 Owners of the parent 19 115,995 51,569 118,571 54,239
Total comprehensive income for the period is attributable to: Non-controlling interest 2,576 2,670 Owners of the parent 114,784 50,751 117,360 53,421
Reported operations Basic earnings per share (cents per share) 30 101.9 ¢ 56.9 ¢ Diluted earnings per share (cents per share) 30 98.9 ¢ 48.7 ¢
Continuing operations Basic earnings per share (cents per share) 30 97.9 ¢ 68.7 ¢ Diluted earnings per share (cents per share) 30 95.0 ¢ 58.9 ¢
Discontinued operations Basic earnings per share (cents per share) 30 4.0 ¢ (11.8)¢ Diluted earnings per share (cents per share) 30 3.9 ¢ (11.8)¢
The accompanying notes form an integral part of this consolidated statement of comprehensive income.
81 2017 Annual Report — Elders CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 September 2017
2017 2016 Note $000 $000 Current assets Cash and cash equivalents 21(b) 35,186 35,151 Trade and other receivables 6 385,641 381,316 Livestock 7(a) 44,616 36,057 Inventory 8 111,101 109,643 Total current assets 576,544 562,167
Non current assets Plantations 7(b) - 1,300 Other financial assets 9 1,269 19,304 Equity accounted investments 10 53,842 3,412 Property, plant and equipment 11 29,885 30,562 Intangibles 12 81,230 10,418 Deferred tax assets 5 59,382 64,126 Total non current assets 225,608 129,122
Total assets 802,152 691,289
Current liabilities Trade and other payables 13 355,539 331,565 Interest bearing loans and borrowings 14 130,482 121,300 Current tax payable 5 109 1,090 Provisions 15 49,077 42,661 Total current liabilities 535,207 496,616
Non current liabilities Other payables 13 5,343 3,820 Provisions 15 3,924 4,349 Total non current liabilities 9,267 8,169
Total liabilities 544,474 504,785
Net assets 257,678 186,504
Equity Contributed equity 16 1,422,255 1,422,382 Hybrid equity 17 - 36,830 Reserves 18 (27,596) (29,063) Retained earnings 19 (1,139,118) (1,246,064) Total parent entity equity interest 255,541 184,085
Non-controlling interests 2,137 2,419 Total equity 257,678 186,504
The accompanying notes form an integral part of this consolidated statement of financial position.
82 Annual Financial Report CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 September 2017
2017 2016 Note $000 $000 Cash flow from operating activities Receipts from customers 7,104,407 6,434,915 Payments to suppliers and employees (7,017,838) (6,377,688) Dividends received 5,592 546 Interest and other costs of finance paid (7,095) (7,593) Income taxes paid (3,467) (1,504) Net operating cash flows 21(a) 81,599 48,676
Cash flow from investing activities Payment for property, plant and equipment (3,481) (5,986) Purchase of other financial assets at cost - (18,035) Purchase of equity accounted investments (30,306) - Payment for intangibles (590) (1,079) Payment for controlled entities, net of cash acquired (11,828) (3,659) Proceeds from sale of property, plant and equipment 198 560 Proceeds from sale of intangibles - 907 Proceeds from disposal of controlled entity 2,696 - Proceeds from sale of plantations 1,300 - Net investing cash flows (42,011) (27,292)
Cash flow from financing activities Proceeds from issue of shares - 102,424 Share issue costs (127) (4,902) Proceeds/(Repayment) of borrowings 8,622 (15,522) Hybrid equity distributions (3,557) - Hybrid equity repurchased (42,009) (67,031) Partnership profit distributions/dividends paid (2,482) (1,871) Net financing cash flows (39,553) 13,098
Net increase/(decrease) in cash held 35 34,482 Cash at the beginning of the financial year 35,151 669 Cash at the end of the financial year 21(b) 35,186 35,151
The accompanying notes form an integral part of this consolidated statement of cash flows.
83 2017 Annual Report — Elders CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 September 2017
Non- Issued Hybrid Retained controlling $000 capital equity Reserves earnings interest Total equity As at 1 October 2016 1,422,382 36,830 (29,063) (1,246,064) 2,419 186,504 Profit for the period - - - 115,995 2,576 118,571 Other comprehensive income/(loss): Exchange differences on translation of foreign operations - - (1,211) - - (1,211) Total comprehensive income/(loss) for the period - - (1,211) 115,995 2,576 117,360
Transactions with owners in their capacity as owners: Partnership profit distributions/dividends paid - - - - (2,482) (2,482) Other movements in non-controlling interest - - - - (376) (376) Hybrid equity repurchased net of transaction costs - (42,009) - - - (42,009) Hybrid equity distributions - - - (3,557) - (3,557) Cost of share based payments - - 2,205 - - 2,205 Reallocation of equity - 5,179 - (5,179) - - Other (127) - 473 (313) - 33 As at 30 September 2017 1,422,255 - (27,596) (1,139,118) 2,137 257,678
As at 1 October 2015 1,323,284 107,600 (19,307) (1,301,213) 1,265 111,629 Profit for the period - - - 51,569 2,670 54,239 Other comprehensive income/(loss): Exchange differences on translation of foreign operations - - (818) - - (818) Total comprehensive income/(loss) for the period - - (818) 51,569 2,670 53,421
Transactions with owners in their capacity as owners: Shares issued 102,424 - - - - 102,424 Transaction costs incurred on share issue, net of tax (3,326) - - - - (3,326) Partnership profit distributions/dividends paid - - - - (1,871) (1,871) Other movements in non-controlling interest - - - - 355 355 Hybrid equity repurchased net of transaction costs - (67,242) - - - (67,242) Put options provided to non-controlling interests - - (10,190) - - (10,190) Cost of share based payments - - 1,304 - - 1,304 Reallocation of equity - (3,528) (52) 3,580 - - As at 30 September 2016 1,422,382 36,830 (29,063) (1,246,064) 2,419 186,504
The accompanying notes form an integral part of this consolidated statement of changes in equity.
84 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 1 — Corporate Information The consolidated financial report of Elders Limited for the year ended 30 September 2017 was authorised for issue in accordance with a resolution of the Directors on 13 November 2017. Elders Limited (the Parent) is a for profit company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Company are described in the Directors’ Report and Note 24. References in this consolidated financial report to ‘Elders’ are to Elders Limited and each of its controlled entities unless the context requires otherwise.
Note 2 — Summary of Significant Accounting Policies (a) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report has also been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value, and biological assets that are measured at fair value less costs to sell. The financial report is presented in Australian dollars and under the ASIC Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, all values are rounded to the nearest thousand dollars ($000) unless otherwise stated. The financial report has been prepared on a going concern basis. Comparative information which relates to prior periods is restated to be comparable with current year disclosures. (b) Compliance with IFRS The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (c) New accounting standards and interpretations (i) New and Revised Accounting Standards A number of new amendments to standards and interpretations became operative for the financial year ended 30 September 2017 and have been applied in preparing these consolidated financial statements. None of these have materially impacted Elders and its policies. Elders has not elected to early adopt any new standard, interpretation or amendment that has been issued but is not yet effective.
(ii) Accounting Standards and Interpretations issued but not yet effective Certain new accounting standards and interpretations have been published that are not mandatory for the financial year ended 30 September 2017 but are available for early adoption and have not been applied in preparing this report. The impact of AASB 9 Financial Instruments, AASB 15 Revenue from Contracts with Customers and AASB 16 Leases has not yet been fully assessed. (d) Basis of consolidation The consolidated financial statements comprise the financial statements of Elders Limited and its subsidiaries as at 30 September 2017. Control is achieved when Elders is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, Elders controls an investee if and only if Elders has: —— Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) —— Exposure, or rights, to variable returns from its involvement with the investee, and —— The ability to use its power over the investee to affect its returns When Elders has less than a majority of the voting or similar rights of an investee, it considers all relevant facts and circumstances in assessing whether it has power over an investee, including: —— The contractual arrangement with the other vote holders of the investee —— Rights arising from other contractual arrangements —— Elders’ voting rights and potential voting rights Elders re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when Elders obtains control over the subsidiary and ceases when it loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date Elders gains control until the date Elders ceases to control the subsidiary.
85 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 2 — Summary of Significant Accounting Policies Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of Elders and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with Elders’ accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of Elders are eliminated in full on consolidation. (e) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, Elders elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When Elders acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or as a charge to other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured until it is finally settled within equity. In instances where the contingent consideration does not fall within the scope of AASB 139, it is measured in accordance with the appropriate AASB standard. (f) Foreign currency translation (i) Functional and presentation currency Both the functional and presentation currency of Elders Limited and its Australian subsidiaries is Australian Dollars (AUD). Subsidiaries incorporated in countries other than Australia (see note 26), which have a functional currency other than Australian Dollars, are translated to the presentation currency.
(ii) Transactions and balances Transactions in foreign currencies are initially recorded by subsidiaries at their respective functional currency rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit and loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.
(iii) Translation of Subsidiary Companies’ functional currency to presentation currency The results of subsidiaries incorporated in countries other than Australia, are translated into Australian Dollars (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of net investments in overseas subsidiaries are taken to the foreign currency translation reserve. If such a subsidiary was sold, the proportionate share of exchange differences would be transferred out of equity and recognised in profit or loss. (g) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash deposits as defined above, net of outstanding bank overdrafts. (h) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that Elders will not be able to collect the receivable. Financial difficulties of the debtor, default payment or debts greater than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate.
86 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 2 — Summary of Significant Accounting Policies (i) Inventory Inventories are valued at the lower of cost and net realisable value. Costs are assigned to individual items of inventory predominately on the basis of weighted average cost. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. Supplier rebates are recognised as a reduction in the cost of inventory and are recorded as a reduction in cost of sales when the inventory is sold. (j) Biological assets Elders holds biological assets in the form of livestock and plantations (in the prior year). Livestock is measured at fair value, which has been determined based upon various assumptions, including livestock prices, less costs to sell. These assumptions reflect the different categories of livestock held. The market value increments or decrements are recorded in profit and loss. Plantations are measured at anticipated fair value less point of sale costs. (k) Derivative financial instruments and hedging Elders uses forward currency contracts to hedge risks associated with foreign currency rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as financial assets when their fair value is positive and as financial liabilities when their fair value is negative. Derivative assets and liabilities are classified as non-current in the statement of financial position when the remaining maturity is more than 12 months, or current when the remaining maturity is less than 12 months. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Any gains or losses arising from changes in fair value of derivatives are taken directly to profit and loss. (l) Discontinued operations A discontinued operation is a component of the entity that has been disposed of that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of comprehensive income and the assets and liabilities are presented separately on the face of the statement of financial position. (m) Other financial assets Other financial assets consist of unlisted investments held at historical cost and are classified as available for sale financial assets. (n) Equity accounted investments Elders’ equity accounted investments are accounted for using the equity method of accounting in the consolidated financial statements and at cost in the parent. Equity accounted investments are entities over which Elders has significant influence and that are neither subsidiaries nor joint ventures. Elders generally deems it has significant influence if it has 20% of the voting rights. Under the equity method, equity accounted investments are carried in the consolidated financial statements at cost plus post acquisition changes in Elders’ share of net assets of the investment. Goodwill relating to the investment is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The income statement reflects Elders’ share of the results of operations of the equity accounted investments. (o) Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, Elders recognises such parts as individual assets with specific useful lives and depreciates them accordingly. All other repairs and maintenance are recognised in profit or loss as incurred. Property, plant and equipment, excluding freehold land and assets under construction, are depreciated over the estimated useful economic life of specific assets as follows:
Life Method Buildings 50 years Straight line Leasehold improvements Lease term Straight line Plant and equipment – owned 3 to 10 years Straight line Plant and equipment – leased Lease term Straight line Network infrastructure 5 to 25 years Straight line
87 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 2 — Summary of Significant Accounting Policies The useful lives are consistent with those of the prior period. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate at each financial year end. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount. These are included in the statement of comprehensive income. (p) Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in the arrangement.
(i) Elders as a lessee Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that Elders will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.
(ii) Elders as a lessor Leases in which Elders retains substantially all the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. (q) Impairment of non financial assets other than goodwill and indefinite life intangibles Non financial assets other than goodwill and indefinite life intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. At each reporting date, Elders conducts an internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non financial assets other than goodwill that suffered impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that impairment may be reversed. (r) Intangibles (i) Brand names The brand name intangibles are deemed to have an indefinite useful life and are not amortised. The brand names are tested for impairment at each reporting date or whenever there is indication of impairment. Impairment is determined by assessing the recoverable amount of the group of cash-generating units, to which the brand names relate. When the recoverable amount of the group of cash-generating units is less than the carrying amount, an impairment loss is recognised. When the recoverable amount of the group of cash-generating units is higher than the carrying amount, Elders will assess whether it is appropriate to reverse any previous impairments. The brand name value represents the value attributed to brands when acquired through business combinations and is carried at cost less accumulated impairment losses. The brand names have been determined to have an indefinite useful life due to there being no foreseeable limit to the period over which they are expected to generate net cash inflows, given the strength and durability of the brands and the level of marketing support. The brands have been in the rural and regional Australian market for many years, and the nature of the industry Elders operates in is such that brand obsolescence is not common, if appropriately supported by advertising and marketing spend. Expenditure incurred in developing, maintaining or enhancing the brand names is expensed in the year that it occurred.
88 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 2 — Summary of Significant Accounting Policies (ii) Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment.
(iii) Rent rolls Rent rolls have been acquired and are carried at cost less accumulated amortisation and impairment losses. These intangible assets have been determined to have finite useful lives and are amortised over their useful lives of 10 years and tested for impairment whenever there is an indicator of impairment. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in accounting estimate and is thus accounted for on a prospective basis. (s) Trade and other payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided to Elders prior to the end of the financial year that remain unpaid and arise when Elders becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within supplier terms.
Financial guarantees Financial guarantee contracts issued by Elders are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specific debtor fails to make a payment when due in accordance with the terms of the debt instrument. Financial guarantee contracts are recognised initially at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. (t) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Borrowings are classified as current liabilities unless Elders has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (u) Provisions and employee benefits Provisions are recognised when Elders has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When Elders expects some or all of the provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs.
89 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 2 — Summary of Significant Accounting Policies Employee benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ service up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.
(ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.
Restructuring and redundancy Provisions are only recognised when general recognition criteria provisions are fulfilled. Additionally, Elders needs to follow a detailed formal plan about the business or part of the business concerned, the location and the number of employees affected, a detailed estimate of the associated costs, and appropriate time line. The people affected have a valid expectation that the restructuring is being carried out or the implementation has been initiated already.
Make Good (Restoration) Where Elders has entered into leasing arrangements that require the leased asset to be returned at the end of the lease term in its original condition, an estimate is made of the costs of restoration or dismantling of any improvements and a provision is raised.
Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of complying with the contract. Before a provision is established, Elders recognises any impairment loss on the assets associated with that contract. (v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are included in equity as a deduction, net of tax, from the proceeds. (w) Earnings per share Basic earnings per share amounts are calculated by dividing net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares into ordinary shares. Hybrids acquired by Elders are not considered dilutive. (x) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Elders and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
(i) Sale of goods Revenue from the sale of goods is recognised when there has been a transfer of risks and rewards to the customer (through the execution of a sales agreement at the time of delivery of the goods to the customer), no further work or processing is required, the quantity and quality of the goods has been determined, the price is fixed and generally title has passed (for shipped goods this is the bill of lading).
(ii) Rendering of agency services Revenue from the rendering of services is recognised as the service is provided.
(iii) Interest income Revenue is recognised as it accrues using the effective interest rate method.
(iv) Dividend income Revenue is recognised when Elders’ right to receive the payment is established. Dividends received from equity accounted investments are accounted for in accordance with the equity method of accounting.
90 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 2 — Summary of Significant Accounting Policies (y) Income tax and other taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: —— where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and —— when the taxable temporary difference is associated with investments in subsidiaries or equity accounted investments and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax assets and unused tax losses can be utilised except: —— when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and —— when the deductible temporary difference is associated with investments in subsidiaries or equity accounted investments, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: —— where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and —— receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
91 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 3 — Significant Accounting Judgements, Estimates and Assumptions The preparation of Elders’ consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the result of which forms the basis of the carrying value of assets and liabilities that are not readily apparent from other sources. Management has identified the following critical accounting policies for which significant judgement, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect the financial result or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.
Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable the future taxable profit will be available to utilise those temporary differences. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and the level of future taxable profits together with future tax planning strategies.
Impairment of non-financial assets other than Brand Name and goodwill Elders assesses impairment of all assets at each reporting date by evaluating conditions specific to the Company and to the particular asset that may lead to impairment. These include product performance, technology, climate, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. It is Elders’ policy to conduct bi-annual internal reviews of asset values, which are used as sources of information to assess for indicators of impairment. Assets have been tested for impairment in accordance with the accounting policies, including the determination of recoverable amounts of assets using the higher of value in use and fair value less cost to sell.
Impairment of Brand Name and goodwill Elders assesses impairment of assets at each reporting date by evaluating conditions specific to the Company and to the particular asset that may lead to impairment. These include product performance, technology, climate, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. It is Elders’ policy to conduct bi-annual internal reviews for indicators of impairment. If indicators exist, assets are tested for impairment through determination of recoverable amounts of assets using the higher of value in use and fair value less cost to sell. Elders determines whether the Brand Name and goodwill are impaired or whether it is appropriate to reverse any previous impairments on an annual basis. This requires an estimation of the recoverable amount of the associated cash-generating units, using a value in use discounted cash flow methodology, to which the Brand Name or goodwill is allocated.
Accounting for rebates Elders receives rebates associated with the purchase of retail goods from suppliers. These vary in nature and include price and volume rebates. Rebates, in line with the relevant contractual arrangements, are recognised as a reduction to cost of sales when the sale of the particular product occurs.
92 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 4 — Revenue and Expenses
2017 2016 Note $000 $000 Sales revenue Sale of goods and biological assets 1,267,412 1,166,490 Debtor interest associated with sales 5,579 5,044 Commission revenue 330,146 347,802 1,603,137 1,519,336 Discontinued operations 33 99,002 222,582 1,702,139 1,741,918
Other items of income/(expense) Insurance equity accounted investment fair value adjustment 2,270 - Impairment reversal/(impairment) of assets 54,785 (1,049) Other (2,054) (177) 55,001 (1,226) Discontinued operations 33 4,538 (6,048) 59,539 (7,274)
Finance costs Interest expense 6,830 7,176 Unwinding of discounts in regards to liabilities 435 2,167 7,265 9,343 Discontinued operations 33 265 417 7,530 9,760
Specific expenses: depreciation and amortisation Depreciation and amortisation 4,134 3,706
Specific expenses: employee benefit expense Salaries, wages and incentives 145,798 134,189 Superannuation and other employee costs 27,681 26,361 Share based payments 2,205 1,304 175,684 161,854 Discontinued operations 1,084 3,590 176,768 165,444
Operating lease expenditure 43,163 60,662 Foreign exchange net gains 334 233 Provision for doubtful debts expense 2,985 589
93 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 5 — Income Tax (a) Major components of income tax expense are:
2017 2016 $000 $000 Income statement Current income tax expense (3,019) (3,288) Adjustments in respect of current income tax of previous years 66 (673) Deferred income tax (expense)/benefit (2,290) 27,961 Income tax (expense)/benefit reported in the statement of comprehensive income (5,243) 24,000
Statement of changes in equity Deferred tax recognised directly in equity - 1,365
(b) Reconciliation of income tax expense applicable to accounting profit/(loss) before income tax at the statutory income tax rate to income tax expense at Elders’ effective income tax rate is as follows: Accounting profit/(loss) before tax from: —— Continuing operations 118,172 45,562 —— Discontinued operations 5,642 (15,323) Total accounting profit before tax 123,814 30,239
Income tax (expense) at 30% (2016: 30%) (37,144) (9,072) Adjustments in respect of current income tax of previous years 66 (673) Share of equity accounted profits 1,623 258 Non-assessable profits/(losses) 2,091 (1,537) Recognition of deferred tax liabilities on intangibles - (1,685) Recognition of previously unrecognised losses 29,259 39,280 Other (1,138) (2,571) Income tax (expense)/benefit as reported in the statement of comprehensive income (5,243) 24,000
Aggregate income tax (expense)/benefit is attributable to: —— Continuing operations (4,137) 19,403 —— Discontinued operations (1,106) 4,597 (5,243) 24,000 Current tax payable 109 1,090
94 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 5 — Income Tax (c) Major components of deferred income tax: Statement of Financial Position Movement 2017 2016 2017 2016 $000 $000 $000 $000 Deferred income tax assets Losses available to offset against future taxable income 57,437 43,251 14,186 35,952 Provision for employee entitlements 14,843 11,734 3,109 525 Other provisions 3,205 3,863 (658) (1,329) Capitalised expenses 4,831 8,239 (3,408) (1,689) Other 1,063 1,114 (51) (877) Gross deferred income tax assets 81,379 68,201 13,178 32,582
Deferred income tax liabilities Inventory (869) (1,655) 786 (1,655) Intangibles (20,304) (1,685) (18,619) (1,685) Other (824) (735) (89) 84 Gross deferred income tax liabilities (21,997) (4,075) (17,922) (3,256) Movement in net deferred tax asset (4,744) 29,326 Deferred income tax (expense)/benefit recognised in the statement of comprehensive income (2,290) 27,961 Deferred income tax liabilities recognised for intangibles acquired as part of business combinations (2,454) - Deferred income tax benefit recognised in equity - 1,365 (4,744) 29,326
Net deferred tax asset 59,382 64,126
Tax losses Elders has tax losses for which no deferred tax asset is recognised in the statement of financial position of $170.8 million (2016: $200.8 million) which are available indefinitely for offset against future taxable profits subject to continuing to meet relevant statutory tests.
Tax Consolidation Elders and its 100% owned Australian resident subsidiaries are in a tax consolidated group. Elders Limited is the head entity of the tax consolidated group. Members of the Group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.
95 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 6 — Receivables
2017 2016 $000 $000 Current Trade debtors 369,938 374,898 Allowance for doubtful debts (6,658) (4,499) 363,280 370,399 Amounts receivable from equity accounted investments 16,531 1,065 Prepayments 1,852 4,846 Other receivables 3,978 5,006 Total current receivables 385,641 381,316
Movements in the allowance for doubtful debts – trade debtors Opening balance of allowance for doubtful debts 4,499 5,236 Trade debts written off (826) (1,326) Trade debts provided for during the year 2,985 589 Closing balance of allowance for doubtful debts 6,658 4,499
Included in trade debtors is $68.0 million (2016: $63.7 million) which is subject to credit insurance with various terms and conditions. Trade receivables are generally on 30 to 90 day terms with the exception of livestock receivables which are on 10 day terms. In some instances deferred terms in excess of 90 days are offered. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment loss of $3.0 million (2016: $0.6 million) has been recognised by Elders. During the period, no individual amount within the impairment allowance was considered material.
The ageing analysis of trade debtors is as follows: Current – within terms 305,687 307,666 Trade debtors past due but not considered impaired 1-30 days 50,601 54,076 31-60 days 3,686 3,273 61-90 days 1,539 1,445 +91 days 1,767 3,939 Trade debtors past due and considered impaired +91 days 6,658 4,499 Total trade debtors 369,938 374,898
Related party receivables For terms and conditions of related party receivables refer to note 29.
Fair value and credit risk Due to the short term nature of trade and other current receivables, their carrying value is assumed to approximate their fair value. For other receivables the carrying amount is not materially different to their fair values. The maximum exposure to credit risk is the fair value of each class of receivables. Details regarding credit risk exposure are disclosed in note 31.
Foreign exchange and interest rate risk Details regarding the foreign exchange and interest rate risk exposure are disclosed in note 31, including those relating to derivative related balances.
Note 7 — Biological Assets (a) Livestock Current Fair value at the end of the period 44,616 36,057
At balance date 27,040 head of cattle (2016: 23,331) are included in livestock. This represents cattle held in Australia and Indonesia for short term trading and feedlotting purposes.
96 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 7 — Biological Assets All Elders’ cattle are valued at fair value internally as there is no observable market for them. Where there are unobservable inputs for an asset or liability, these are classified as Level 3 Price Inputs. The value is based on the estimated exit price per kilogram and the value changes for the weight of each animal as it progresses through the feedlot program. The key factors affecting the value of each animal are price/kg, days on feed and the feed conversion ratio. Significant changes in any of the significant unobservable valuation inputs for feedlot cattle in isolation would result in significantly higher or lower fair value measurement. The group is exposed to a number of risks related to its livestock:
Regulatory and environmental risks Elders is subject to laws and regulations and has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and ensure systems in place are adequate to manage those risks.
Supply and demand risk Elders is exposed to financial risk in respect of livestock activity. The primary financial risk associated with this activity occurs due to the length of time between expending cash on the purchase and ultimately receiving cash from the sale to third parties. Elders’ strategy to manage this financial risk is to actively review and manage its working capital requirements. Elders is exposed to risks arising from fluctuations in price and sales volumes, and product substitution. Where possible, Elders manages these risks by aligning volumes with market supply and demand.
Other risks Elders’ livestock are exposed to the risk of damage from disease and other natural forces. Elders has extensive processes in place aimed at monitoring and mitigating those risks, including regular health inspections and industry pest and disease surveys. (b) Plantations 2017 2016 $000 $000 Non current - 1,300
Opening balance 1,300 5,969 Costs incurred in respect of forestry plantations - 183 Fair value increment in period - 963 Allocation of provisions and payables - (5,815) Proceeds from sale (1,300) - Fair value at the end of the period - 1,300 During the period Elders finalised the sale of its forestry plantation assets.
Note 8 — Inventory
Current Retail 102,958 99,871 Other 8,143 9,772 Total inventory 111,101 109,643 Inventory write-downs recognised as an expense totalled $2.0 million (2016: $0.4 million).
Note 9 — Other Financial Assets
Non current Elders Insurance (Underwriting Agency) Pty Ltd - 18,035 Saleyard assets 1,269 1,269 1,269 19,304 On 1 December 2016, Elders acquired another 10% in Elders Insurance (Underwriting Agency) Pty Limited for $20.3 million. As a result of this transaction, the existing 10% investment was reclassified from other financial assets to equity accounted investments. A fair value adjustment of $2.3 million was also applied to the original investment based on the purchase price of the acquisition.
97 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 10 — Equity Accounted Investments
Balance date Ownership interest 2017 2016 % % Auctions Plus Pty Ltd 30-Jun 50 50 Elders Financial Planning Pty Ltd 30-Sep 49 49 Elders Insurance (Underwriting Agency) Pty Ltd 31-Dec 20 10 StockCo Holdings Pty Ltd 30-Jun 30 -
Consolidated entity investment Contribution to net profit Dividends received 2017 2016 2017 2016 2017 2016 $000 $000 $000 $000 $000 $000 Auctions Plus Pty Ltd 1,450 1,213 992 801 755 546 Elders Financial Planning Pty Ltd 974 2,199 - 60 1,225 - Elders Insurance (Underwriting Agency) Pty Ltd 41,363 - 4,364 - 3,612 - StockCo Holdings Pty Ltd 10,055 - 55 - - - Other - - - 58 - - Equity accounted investments 53,842 3,412 5,411 919 5,592 546
Share of profit Continuing operations 5,411 861 Discontinued operations - 58 All equity accounted investments are Australian resident companies. On 13 October 2016, Elders acquired 30% in StockCo Holdings Pty Ltd for $10.0 million. On 1 December 2016, Elders acquired another 10% in Elders Insurance (Underwriting Agency) Pty Limited for $20.3 million. As a result of this transaction, the existing 10% investment was reclassified from other financial assets to equity accounted investments. A fair value adjustment of $2.3 million was also applied to the original investment based on the purchase price of the acquisition. In 2016 a $1.0 million impairment was recognised against the investment in Elders Financial Planning Pty Ltd. This was recognised in the operating segment titled ‘Other’. Summary financial information for equity accounted investees is as follows:
Profit/(loss) after income tax Assets Liabilities $000 $000 $000 2017 Auctions Plus Pty Ltd 1,984 4,016 (1,179) Elders Financial Planning Pty Ltd (157) 4,699 (863) Elders Insurance (Underwriting Agency) Pty Ltd 21,817 56,938 (51,380) StockCo Holdings Pty Ltd 185 192,893 (193,073) Total 23,829 258,546 (246,495)
2016 Auctions Plus Pty Ltd 1,602 3,337 (912) Elders Financial Planning Pty Ltd 143 7,503 (1,298) Total 1,745 10,840 (2,210)
98 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 11 — Property, Plant and Equipment Reconciliation of carrying amounts at beginning and end of period: Leasehold Plant and Plant and Assets Freehold improve- equipment equipment under con- land Buildings ments (owned) (leased) struction Total $000 $000 $000 $000 $000 $000 $000 2017 Carrying amount at beginning of period 5,354 7,860 6,241 8,704 732 1,671 30,562 Additions - 761 89 1,849 391 391 3,481 Additions through entities acquired - - 519 142 - - 661 Disposals - (5) (405) (275) (37) - (722) Depreciation expense - (656) (792) (1,785) (390) - (3,623) Exchange fluctuations (190) (91) - (151) - (42) (474) Transfers from assets under construction - 427 - 1,274 - (1,701) - Other - - - 93 (93) - - Carrying amount at end of period 5,164 8,296 5,652 9,851 603 319 29,885
Cost 5,164 15,970 12,224 27,440 1,031 319 62,148 Accumulated depreciation and impairment - (7,674) (6,572) (17,589) (428) - (32,263) 5,164 8,296 5,652 9,851 603 319 29,885
2016 Carrying amount at beginning of period 5,362 7,500 6,168 8,542 734 352 28,658 Additions - 1,054 919 2,095 476 1,442 5,986 Additions through entities acquired - - - 200 - - 200 Disposals (64) (116) (2) (142) (14) - (338) Depreciation expense - (612) (833) (1,869) (330) - (3,644) Impairment - (83) (11) (330) - - (424) Exchange fluctuations 56 61 - 7 - - 124 Transfers from assets under construction - 56 - 67 - (123) - Other - - - 134 (134) - - Carrying amount at end of period 5,354 7,860 6,241 8,704 732 1,671 30,562
Cost 5,354 15,014 12,136 25,872 1,128 1,671 61,175 Accumulated depreciation and impairment - (7,154) (5,895) (17,168) (396) - (30,613) 5,354 7,860 6,241 8,704 732 1,671 30,562
All Property, plant and equipment is pledged as security, refer to note 14 for interest bearing loans and borrowings.
99 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 12 — Intangibles
Non current Goodwill Rent rolls Brand Names Other Total $000 $000 $000 $000 $000 2017 Carrying amount at beginning of period 2,052 2,751 5,615 - 10,418 Additions - 590 - - 590 Additions through entities acquired 7,164 4,904 2,579 1,301 15,948 Amortisation - (511) - - (511) Impairment reversal - - 54,785 - 54,785 Carrying amount at end of period 9,216 7,734 62,979 1,301 81,230
Cost 9,216 8,307 62,979 1,301 81,803 Accumulated amortisation and impairment - (573) - - (573) 9,216 7,734 62,979 1,301 81,230
2016 Carrying amount at beginning of period - - 5,615 - 5,615 Additions - 1,079 - - 1,079 Additions through entities acquired 2,052 1,734 - - 3,786 Amortisation - (62) - - (62) Carrying amount at end of period 2,052 2,751 5,615 - 10,418
Cost 2,052 2,813 60,400 - 65,265 Accumulated amortisation and impairment - (62) (54,785) - (54,847) 2,052 2,751 5,615 - 10,418
As at 30 September 2016, the Elders Brand Name was carried at $5.6 million, net of accumulated impairment of $54.8 million. During the period, the previously recognised impairment losses have been reversed. Management has determined in the current year that there is a reversal of the previously recognised impairment loss in relation to the Brand Name due to sustained positive results in line with the Eight Point Plan over a number of years, including the removal of profit and loss volatility and other uncertainty due to the exit of the Live Export segment. For impairment testing purposes, all intangibles except for the Elders’ Brand Name are allocated to the Network CGU, which is also an operating segment.
Elders Brand Name For the purposes of impairment testing, the Elders Brand Name has not been allocated to individual CGU’s but rather assessed against all CGUs expected to benefit from it. The recoverable amount of the cash generating units to which the Elders Brand Name has been allocated to have been determined based on a value in use calculation using cash flow projections approved by management that covers a period of 5 years. Future cash flows are based on budgets and forecasts taking into account current market conditions and known future business events that will impact cash flows. The discount rate applied to the cash flow projections is 10.6% pre-tax (2016: 11.0% pre-tax) which has been determined based on a weighted average cost of capital calculation which incorporates the specific risks relating to the cash generating units identified. The calculation of value in use for the cash generating units expected to benefit from the Elders Brand Name was based on the following key assumptions:
Gross margin Gross margin is expected to increase from financial year 2017 levels due to: ——Increased earnings from geographical expansion through acquisitions and footprint growth as implemented in the 2017 financial year ——Higher earnings from continued organic growth focus across our product and service portfolio ——Livestock volume increase due to continued footprint expansion and additional trading opportunities offset by easing of cattle and sheep prices throughout financial year 2018 Selling, general and administrative expenses Ongoing emphasis on cost control will be offset by investment directly linked to margin improvement and control enhancement, including implementation of remuneration models which drive performance and growth.
100 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 12 — Intangibles Growth rate estimates Cash flows are based on the 2018 budget. No EBIT growth for years 2 to 5 or perpetuity has been incorporated in the discounted cash flow.
Discount rates Discount rates reflect management’s estimate of the time value of money and the specific risk not already reflected in the cash flows.
Note 13 — Trade and Other Payables
2017 2016 $000 $000 Current Trade creditors 314,750 303,710 Other creditors and accruals 37,841 27,855 Payables to associated companies 2,948 - 355,539 331,565
Non current Other creditors and accruals 5,343 3,820 Total trade and other payables 360,882 335,385
Fair Value Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.
Financial guarantees Information regarding financial guarantees is set out in note 23 and 31.
Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 31, including those relating to derivative forward contracts.
Note 14 — Interest Bearing Loans and Borrowings
Current Trade receivables funding 129,874 120,697 Lease liabilities 608 603 130,482 121,300 Elders also has an ancillary facility in relation to contingent funding, such as bank guarantees. As at 30 September 2017, $5.2 million had been issued (2016: $1.4 million).
Assets pledged as security Secured loans are secured by various fixed and floating charges over all the assets of Elders Limited (either directly or indirectly). Lease liabilities are secured by a charge over the leased assets.
Fair value The carrying value of interest bearing liabilities approximates fair value.
101 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 15 — Provisions Reconciliation of carrying amounts at beginning and end of period:
Employee Restructuring Onerous entitlements provisions Make good contracts Other Total $000 $000 $000 $000 $000 $000 2017 As at beginning of period 39,342 3,176 - 3,990 502 47,010 Arising during year 14,575 344 265 1,055 610 16,849 Utilised (5,404) (3,317) - (411) (199) (9,331) Unused amounts reversed - (152) - (2,565) (52) (2,769) Discount rate adjustment 435 - - - - 435 Provisions arising from entities acquired 807 - - - - 807 Transfer between provisions - 1,064 - (1,064) - - 49,755 1,115 265 1,005 861 53,001 Disclosed as: Current 45,831 1,115 265 1,005 861 49,077 Non current 3,924 - - - - 3,924 Total 49,755 1,115 265 1,005 861 53,001
2016 As at beginning of period 38,231 917 3,603 9,443 112 52,306 Arising during year 5,589 3,076 - 3,989 390 13,044 Utilised (6,510) (587) (3,452) (3,797) - (14,346) Unused amounts reversed - (230) (151) - - (381) Discount rate adjustment 1,698 - - 313 - 2,011 Provisions arising from entities acquired 334 - - - - 334 Other - - - (5,958) - (5,958) 39,342 3,176 - 3,990 502 47,010 Disclosed as: Current 34,993 3,176 - 3,990 502 42,661 Non current 4,349 - - - - 4,349 Total 39,342 3,176 - 3,990 502 47,010 Note 16 — Contributed Equity
2017 2016 $000 $000 Issued and paid up capital 113,859,440 ordinary shares (September 2016: 113,859,440) 1,422,255 1,422,382
Contributed equity declined by $0.1 million as a result of purchase of shares on market for senior executive short term incentive programs. Elders considers both capital and net debt as relevant components of funding, hence, part of its capital management. When managing capital and net debt, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.
Note 17 — Hybrid Equity
Hybrid equity - 36,830
During the period, Elders realised all Hybrids at a price of $108.48 each, being total consideration of $45.5 million. As a result of this transaction, all balances relating to hybrid equity have been derecognised.
102 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 18 — Reserves Reconciliation of carrying amounts at beginning and end of period: Business Employee Foreign cur- combination equity bene- rency transla- reserve fits reserve tion reserve Total $000 $000 $000 $000 2017 Carrying amount at beginning of period (26,418) 1,711 (4,356) (29,063) Exchange differences on translation of foreign operations - - (1,211) (1,211) Cost of share based payments - 2,205 - 2,205 Other 473 - - 473 Carrying amount at end of period (25,945) 3,916 (5,567) (27,596)
2016 Carrying amount at beginning of period (16,228) 459 (3,538) (19,307) Exchange differences on translation of foreign operations - - (818) (818) Put options provided to non-controlling interests (10,190) - - (10,190) Cost of share based payments - 1,304 - 1,304 Transfer to retained earnings - (52) - (52) Carrying amount at end of period (26,418) 1,711 (4,356) (29,063)
Nature and purpose of reserves (i) Business combination reserve The reserve is used to record the differences between the carrying value of non-controlling interests and the consideration paid/received, where there has been a transaction involving non-controlling interests that do not result in a loss of control. Under agreements entered into with a number of non-controlling interests, the non-controlling shareholders have put options over their interests. These options are exercisable in accordance with the terms of each agreement. The potential liability for Elders under the put options is based on expectations of the exercise price and timing, discounted to present value using Elders’ incremental borrowing rate. The recognition of the put options is reflected in the business combination reserve and as a financial liability within current liabilities.
(ii) Employee equity benefits reserve This reserve is used to record the value of equity benefits provided to employees, including key management personnel as part of their remuneration.
(iii) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries, including exchange differences arising from loans which are deemed to be net investments in a foreign operation.
Note 19 — Retained Earnings
2017 2016 $000 $000 Retained earnings at the beginning of the financial year (1,246,064) (1,301,213) Net profit attributable to owners of the parent 115,995 51,569 Transfer from employee equity benefits reserve - 52 Hybrid equity distribution (3,557) - Reallocation of equity (5,179) 3,528 Other (313) - Retained earnings at the end of the financial year (1,139,118) (1,246,064)
103 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 20 — Dividends No dividends paid during the year (2016: Nil).
2017 2016 $000 $000 Subsidiary equity dividends on ordinary shares: Dividends paid to non-controlling interests during the year 2,482 1,871
Franking credits available to the parent for subsequent financial years based on tax rate of 30% (2016: 30%) 24,900 21,600
Note 21 — Cash Flow Statement Reconciliation (a) Reconciliation of net profit after tax to net cash flows from operations Profit after income tax expense 118,571 54,239 Adjustments for non cash items: Depreciation and amortisation 4,134 3,706 Unwinding of discount in regards to provisions 435 2,167 Equity accounted profits (5,411) (919) Dividends from equity accounted investments 5,592 546 Fair value adjustments to equity accounted investments (2,270) - Other fair value adjustments (396) (1,018) (Impairment reversal)/impairment (54,785) 1,473 Doubtful debts 2,985 589 Employee entitlements 15,010 7,287 Other provisions (495) 7,387 Other write downs 2,030 397 Net (profit)/loss on sale of non-current assets 524 (1,129) Net (profit) on sale of controlled entity (1,955) - Net tax movements 1,097 (28,039) Other non cash items 2,205 2,669 87,271 49,355 —— (Increase)/decrease in receivables and other assets (13,143) (17,862) —— (Increase)/decrease in inventories (505) (9,184) —— Increase/(decrease) in payables and provisions 7,976 26,367 Net cash flows from operating activities 81,599 48,676
(b) Cash and cash equivalents Cash at bank and in hand 35,186 35,151
At balance date, Elders held $22.9 million of client monies in trust which are off balance sheet. The funds are held on behalf of clients in the Real Estate business and Elders is bound by the relevant legislation in each state in relation to controls and governance over the funds.
104 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 22 — Expenditure Commitments Operating lease commitments – Elders as a lessee Elders’ operating lease commitments relate to property leases associated with the branch network and vehicle leases. The lease commitments comprise base amounts adjusted where necessary for escalation clauses primarily based on inflation rates. Leases generally provide the right of renewal at the end of the lease term.
2017 2016 $000 $000 Operating lease commitments: —— Within one year 28,929 45,080 —— After one year but not later than five years 35,244 58,872 —— After more than five years 5,744 8,213 Total minimum lease payments 69,917 112,165
Note 23 — Contingent Liabilities
Contingent liabilities at balance date, not otherwise provided for in the financial statements, are as follows: Guarantees issued to third parties arising in the normal course of business 5,207 1,364
There are potential legal matters that occur in the ordinary course of business that are being considered by Elders’ legal advisors. Based on the current information available, the following applies:
Unquantifiable contingent liabilities ——Elders has contingent obligations in respect of real property let or sub-let by subsidiaries of Elders. ——Elders has contingent obligations in respect of real property sub-let to the purchaser of Elders’ former Sandalwood estate. ——Benefits are payable under service agreements with the Executive Director and other employees of Elders under certain circumstances such as achievement of prescribed performance hurdles, occurrence of certain events or termination of employment for reasons other than serious misconduct. ——Subsidiaries of Elders have, from time to time and in the ordinary course, provided parent company guarantees in respect of certain contractual obligations of their subsidiaries. The contingent exposure under those guarantees on a consolidated basis is no greater than the exposure of the subsidiary having the principal contractual obligation. ——Subsidiaries of Elders have from time to time provided warranties and indemnities in connection with the disposal of assets. The Directors are not aware at the present time of any material exposures under the warranties or indemnities. ——Various legal claims for damages resulting from the use of products or services of Elders, and from contracts entered into or alleged to have been entered into by Elders, are in existence for which no provision has been raised as it is not currently probable that these claims will succeed or it is not practical to estimate the potential effect of these claims. The Directors are of the view that none of these claims based on the net exposure are likely to be material. Other guarantees As disclosed in note 26, the parent entity has entered into a Deed of Cross Guarantee with certain controlled entities. The effect of this Deed is that Elders Limited and each of these controlled entities has guaranteed to pay any deficiency of any of the companies party to the Deed in the event of any of those companies being wound up. The parent entity and certain subsidiaries of Elders are parties to various guarantees and indemnities pursuant to bank facilities and operating lease facilities extended to Elders.
Note 24 — Segment Information Identification of reportable segments Elders has identified its operating segments to be Network, Feed and Processing, Live Export and Other. This is the basis on which internal reports are reviewed and used by the Chief Executive Officer (the chief operating decision maker) in assessing performance and in determining allocation of resources. Discrete financial information about each of these operating businesses is reported to the Chief Executive Officer on at least a monthly basis. Elders operates predominantly within Australia. All other geographical operations are not material to the financial statements.
105 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 24 — Segment Information Type of product and service ——Network includes the provision of a range of retail products and services through a common distribution channel, including agricultural retail products, agency services and financial services. ——Feed and Processing includes the Australian cattle feedlot near Tamworth in New South Wales (Killara Feedlot), the Indonesian cattle feedlot near Lampung (PT Elders Indonesia), and Elders Fine Foods which is involved in the importation and distribution of Australian and New Zealand food products throughout China. ——Live Export facilitates principal position trades of dairy, beef feeder, beef slaughter and breeding cattle, and sheep from Australia and New Zealand to international markets by sea or air freight. Elders has exited the live export business during the year. ——The Other segment includes the general investment activities not associated with the other business segments and the administrative corporate office activities, including centrally held costs not allocated to the other segments. Accounting policies and intersegment transactions The accounting policies used by Elders in reporting segments internally are the same as those contained in note 2 to the accounts. Segment results have been determined on a consolidated basis and represent the earnings before corporate net financing costs and income tax expense. Changes have been made to the composition of the Other segment to reflect changes in internal reporting. The comparative segment information has been restated to reflect these changes.
Feed and Network Processing Live Export Other Total $000 $000 $000 $000 $000 2017 Sales revenue 1,425,820 176,716 99,002 601 1,702,139 Equity accounted profits 5,411 - - - 5,411
Earnings before interest, tax, depreciation & amortisation 116,943 6,037 5,907 6,591 135,478 Depreciation & amortisation (2,511) (1,179) - (444) (4,134) Segment result 114,432 4,858 5,907 6,147 131,344 Corporate net interest expense (7,530) Profit from ordinary activities before tax 123,814
Segment result 114,432 4,858 5,907 6,147 131,344 Discontinued operations results - - (5,907) - (5,907) Continuing profit before net borrowing costs and tax expense 114,432 4,858 - 6,147 125,437 Corporate net interest expense (7,265) Continuing profit before tax expense 118,172
Segment assets 567,599 72,202 - 162,351 802,152 Segment liabilities 309,952 8,747 - 225,775 544,474 Net assets 257,647 63,455 - (63,424) 257,678
Carrying value of equity accounted investments 53,842 - - - 53,842 Acquisition of non current assets 44,989 1,216 - - 46,205 Non cash income/(expense) other than depreciation and amortisation (2,530) - - 36,533 34,003 Profit/(loss) on sale of non current assets (524) - 1,955 - 1,431
106 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 24 — Segment Information
Feed and Network Processing Live Export Other Total $000 $000 $000 $000 $000 2016 Sales revenue 1,359,488 159,080 222,582 768 1,741,918 Equity accounted profits 861 - 58 - 919
Earnings before interest, tax, depreciation & amortisation 92,591 3,964 (14,906) (37,944) 43,705 Depreciation & amortisation (2,062) (954) - (690) (3,706) Segment result 90,529 3,010 (14,906) (38,634) 39,999 Corporate net interest expense (9,760) Profit from ordinary activities before tax 30,239
Segment result 90,529 3,010 (14,906) (38,634) 39,999 Discontinued operations results - - 14,906 - 14,906 Continuing profit before net borrowing costs and tax expense 90,529 3,010 - (38,634) 54,905 Corporate net interest expense (9,343) Continuing profit before tax expense 45,562
Segment assets 492,028 57,594 25,122 116,545 691,289 Segment liabilities 282,400 5,531 8,019 208,835 504,785 Net assets 209,628 52,063 17,103 (92,290) 186,504
Carrying value of equity accounted investments 3,412 - - - 3,412 Acquisition of non current assets 27,708 301 101 649 28,759 Non cash income/(expense) other than depreciation and amortisation (2,107) - (424) 9,342 6,811 Profit on sale of non current assets 1,129 - - - 1,129
Note 25 — Auditors’ Remuneration The auditor of Elders Limited is PricewaterhouseCoopers.
2017 2016 $ $ Amounts received or due and receivable by the auditor for: —— auditing or review of financial statements 505,000 565,000 —— tax services (primarily compliance) - 13,120 —— other services 33,650 10,000 538,650 588,120
107 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 26 — Investment in Controlled Entities (a) Schedule of controlled entities Country of % Held by Group Incorporation 2017 2016 Ace Ohlsson Pty Limited Australia (b), (d) 100 - Agsure Pty Ltd Australia (a) 100 100 AI Asia Pacific Operations Holding Limited Hong Kong SAR 100 100 Air International Asia Pacific Operations Pty Ltd Australia (f) 100 100 Air International Vehicle Air Conditioning (Shanghai) Co Ltd China 100 100 APO Administration Limited Hong Kong SAR (e) 100 100 APT Projects Pty Ltd Australia (f) 100 100 Aqa Oysters Pty Ltd Australia (f) 77 77 Argo Trust No. 2 Australia (g) 100 100 Ashwick (Vic) No 102 Pty Ltd Australia (f) 100 100 B & W Rural Pty Ltd Australia 75.5 75.5 BWK Holdings Pty Ltd Australia (f) 100 100 Chemseed Australia Pty Ltd (formerly Elders Conveyancing (WA) Pty Ltd) Australia (b) 100 100 Elders Automotive Group Pty Ltd Australia (f) 100 100 Elders Burnett Moore WA Pty Ltd Australia (f) 100 100 Elders China Trading Company China 100 100 Elders Communications Pty Ltd Australia (f) 100 100 Elders Finance Pty Ltd Australia (a) 100 100 Elders Fine Foods (Shanghai) Company China 100 100 Elders Fine Foods Vietnam Company Limited Vietnam (d) 100 - Elders Forestry Finance Pty Ltd Australia (f) 100 100 Elders Forestry Management Pty Ltd Australia (f) 100 100 Elders Forestry Pty Ltd Australia (f) 100 100 Elders Global Wool Holdings Pty Ltd Australia (f) 100 100 Elders Home Loans Pty Ltd Australia (f) 100 100 Elders Management Services Pty Ltd Australia (f) 100 100 Elders Merchandise Limited New Zealand 100 100 Elders PT Indonesia Indonesia 100 100 Elders Real Estate (Tasmania) Pty Ltd Australia (f) 100 100 Elders Real Estate (WA) Pty Ltd Australia (f) 100 100 Elders Real Estate Limited New Zealand 100 100 Elders Rural Holdings Limited New Zealand 100 100 Elders Rural Services Australia Limited Australia 100 100 Elders Rural Services Limited Australia (a) 100 100 Elders Services Company Pty Ltd Australia (f) 100 100 Elders Stock (SI) Ltd New Zealand 100 100 Elders Telecommunications Infrastructure Pty Ltd Australia (f) 100 100 Elders Victorian Feedlot Pty Ltd (formerly Charlton Feedlot Pty Ltd) Australia (f) 100 100 Elders Wool International Pty Ltd Australia (h) - 100 EVIA Rural Finance Ltd New Zealand 100 100 Family Hospitals Pty Ltd Australia (f) 100 100 Fares Exports Management Mexico, S.A. de C.V. Mexico - 100 Fares Exports Pty Ltd Australia (f) 100 100 Fares Exports Trading Mexico, S.A. de C.V. Mexico - 100 Former EFP Pty Ltd Australia (f) - 100
108 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 26 — Investment in Controlled Entities
Country of % Held by Group Incorporation 2017 2016 Gisborne Farmers Ltd New Zealand 100 100 ITC Timberlands Pty Ltd Australia (f) 100 100 JS Brooksbank & Co Australasia Ltd New Zealand 100 100 JSB New Zealand Limited New Zealand 100 100 Keratin Holdings Pty Ltd Australia (f) 100 100 Killara Feedlot Pty Ltd Australia (a) 100 100 Manor Hill Pty Ltd Australia (f) 100 100 New Ashwick Pty Ltd Australia (f) 100 100 North Australian Cattle Company Pty Ltd Australia (c), (h) - 100 Prestige Property Holdings Pty Ltd Australia (f) 100 100 Primac Exports Pty Ltd Australia (f) 100 100 Primac Pty Ltd Australia (f) 100 100 PT Indo Mahesa Surya Indonesia (h) - 100 Redray Enterprises Pty Ltd Australia (f) 100 100 SDEA Nominees Pty Ltd Australia (b), (d) 100 - Southern Australian Cattle Company Pty Ltd (formerly Elders International Australia Pty Ltd) Australia (c), (h) - 100 Ultrasound Australia Pty Ltd Australia (a) 100 100 Victorian Producers Co-operative Company Pty Ltd Australia (f) 100 100 ——The parties that comprise the Closed Group are denoted by (a). Parties added to the Closed Group during the year are denoted by (b). Parties removed from the Closed Group during the year are denoted by (c). ——Entities acquired or registered during the period are denoted by (d). ——Entities exempted from audit requirements due to overseas legislation or non-corporate status are denoted by (e). ——Entities classified by the Corporations Act as small proprietary companies relieved from audit requirements are denoted by (f). ——Entity denoted by (g) is a controlled special purpose entity related to trade receivable financing program. ——Entities denoted by (h) are entities that were disposed of, deregistered or liquidated during the year. (b) Deed of Cross Guarantee Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 dated 29 September 2016, relief has been granted to these controlled entities of Elders Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ reports. As a condition of the Class Order, Elders Limited, and the controlled entities subject to the Class Order, entered into a Deed of Cross Guarantee. The effect of the deed is that Elders Limited has guaranteed to pay any deficiency in the event of the winding up of any member of the Closed Group, and each member of the Closed Group has given a guarantee to pay any deficiency, in the event that Elders Limited or any other member of the Closed Group is wound up.
109 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 26 — Investment in Controlled Entities Certain members of the Closed Group, in addition to certain controlled entities, are guarantors in connection with the consolidated entity’s borrowings facilities disclosed at note 14. A consolidated statement of comprehensive income and consolidated statement of financial position, comprising Elders and the controlled entities which are a party to the deed, after elimination of all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 September 2017 is set out as follows:
2017 2016 $000 $000 Statement of comprehensive income of the Closed Group Sales revenue 147,141 327,655 Cost of sales (130,734) (326,013) Gross profit 16,407 1,642 Other revenue 40,000 - Distribution expenses (9,119) (6,494) Administrative expenses (8,528) (6,324) Other items of income/(expense) (71,709) 30,416 Finance costs (1,033) (1,525) Profit/(loss) before income tax (expense)/benefit (33,982) 17,715 Income tax (expense)/benefit (5,243) 24,000 Profit/(loss) after income tax (expense)/benefit (39,225) 41,715
Consolidated statement of financial position of the Closed Group Current assets Cash and cash equivalents 1,910 3,620 Trade and other receivables 9,449 19,955 Livestock 36,336 31,943 Inventory 3,546 1,966 Total current assets 51,241 57,484 Non current assets Other financial assets 147,568 85,806 Property, plant and equipment 9,124 8,130 Deferred tax assets 59,382 64,126 Total non current assets 216,074 158,062 Total assets 267,315 215,546 Current liabilities Trade and other payables 8,557 11,563 Interest bearing loans and borrowings - 8,996 Current tax payable 109 1,049 Provisions 971 7,434 Total current liabilities 9,637 29,042 Total liabilities 9,637 29,042 Net assets 257,678 186,504 Equity Contributed equity 1,422,255 1,422,382 Hybrid equity - 36,830 Reserves 3,916 1,711 Retained earnings (1,168,493) (1,274,419) Total equity 257,678 186,504
110 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 27 — Key Management Personnel Remuneration of Directors and other Key Management Personnel For information on the Remuneration Policy, Structure and the relationship between remuneration payment and performance please refer to the Remuneration Report.
2017 2016 $ $ Short term 4,593,333 4,353,316 Long term 70,479 59,614 Post employment 158,909 176,234 Termination benefits - 221,735 Share based payments 1,447,460 856,382 6,270,181 5,667,281
Note 28 — Share Based Payment Plans (a) Long Term Incentive Options In 2015, 1,920,000 options were granted to eligible executives with a three year performance period and split into three tranches. Each tranche carries a different performance condition being Absolute TSR, Underlying EBIT and Return on Capital. Upon paying the required exercise price of $1.57, each option entitles the holder to one ordinary share. An expense of $0.5 million was recognised in profit and loss during the year in relation to the options (2016: $0.3 million). As at 30 September 2017, 1,694,790 options were outstanding. (b) Long Term Incentive Performance Rights In 2016, 970,000 performance rights were granted to eligible executives with a three year performance period and split into three tranches. Each tranche carries a different performance condition being Absolute TSR, EPS Growth and Return on Capital. Upon vesting of performance rights one fully paid share in Elders will be allocated for each performance right. An expense of $0.8 million (2016: $1.0 million) was recognised in profit and loss during the year in relation to these performance rights. As at 30 September 2017, 860,000 rights were outstanding. In 2017, 895,000 performance rights were granted to eligible executives with a three year performance period and split into three tranches. Each tranche carries a different performance condition being Absolute TSR, EPS Growth and Return on Capital. Upon vesting of performance rights one fully paid share in Elders will be allocated for each performance right. An expense of $0.9 million was recognised in profit and loss during the year in relation to these performance rights. As at 30 September 2017, 875,000 rights were outstanding.
Note 29 — Related Party Disclosures The ultimate controlling entity of the Group is Elders Limited. As part of sharing office space with branches in the Network segment, Elders incurred costs on behalf of Elders Financial Planning Pty Ltd and Elders Insurance (Underwriting Agency) Pty Ltd and recharged these at arm’s length. During the year, Elders provided an advance of $10.0 million to StockCo Holdings Pty Ltd.
111 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 30 — Earnings Per Share
2017 2016 Weighted average number of ordinary shares (‘000) used in calculating basic EPS 113,859 90,699 Dilutive share options (‘000) 3,430 15,093 Adjusted weighted average number of ordinary shares used in calculating dilutive EPS (‘000) 117,289 105,792
The following reflects the net profit/(loss) and share data used in the calculations of earnings per share (EPS):
2017 2016 $000 $000 Reported operations Basic and dilutive Net profit/(loss) attributable to members (after tax) 115,995 51,569
Reported operations: Basic earnings per share (cents per share) 101.9 ¢ 56.9 ¢ Diluted earnings per share (cents per share) 98.9 ¢ 48.7 ¢
Continuing operations Basic Net profit/(loss) attributable to members (after tax) 115,995 51,569 Less: Net loss/(profit) of discontinued operations (net of tax) (4,536) 10,726 Net profit/(loss) of continuing operations (net of tax) 111,459 62,295
Continuing operations earnings per share: Basic earnings per share (cents per share) 97.9 ¢ 68.7 ¢ Diluted earnings per share (cents per share) 95.0 ¢ 58.9 ¢
Discontinued operations Net profit/(loss) of discontinued operations (net of tax) 4,536 (10,726)
Discontinued operations earnings per share: Basic earnings per share (cents per share) 4.0 ¢ (11.8)¢ Diluted earnings per share (cents per share) 3.9 ¢ (11.8)¢
112 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 31 — Financial Instruments Elders’ principal financial instruments comprise cash, receivables, payables, interest bearing loans and borrowings, and derivatives.
Risk exposures and responses Elders manages its exposure to key financial risks, including interest rate and currency risk in accordance with its financial risk management policy. The objective of the policy is to support the delivery of financial targets while protecting future financial security. The main risks arising from Elders’ financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. Elders uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange prices. Ageing analysis and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts. The Board reviews and agrees policies for managing each of these risks as summarised below. (a) Interest rate risk Elders’ exposure to market interest rates relates primarily to short term debt obligations. The level of debt is disclosed in note 14. At September 2017 interest on $120.0 million (2016: $70.0 million) of secured loans was hedged under a floating to fixed arrangement, meaning at balance date, Elders had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk:
2017 2016 $000 $000 Financial assets Cash and cash equivalents 35,186 35,151 Amounts receivable from associated entities - 1,065 35,186 36,216
Financial liabilities Secured loans (9,874) (50,697) Net exposure 25,312 (14,481) Elders constantly analyses its interest rate exposure so as to manage its cash flow volatility arising from interest rate changes. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. At balance dates, if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:
Post Tax Profit/equity — Higher/(Lower) 2017 2016 $000 $000 + 100 basis points 253 (145) - 100 basis points (253) 145
113 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 31 — Financial Instruments (b) Liquidity risk Liquidity risk arises from Elders’ financial liabilities and the subsequent ability to meet our obligations to repay their financial liabilities as and when they fall due. Elders’ objective is to maintain a balance between continuity of funding and flexibility through the use of committed available lines of credit. Elders manages its liquidity risk by monitoring the total cash inflows and outflows expected on a daily basis. Elders has established comprehensive risk reporting covering its business units that reflect expectations of management of the expected settlement of financial assets and liabilities.
(i) Non derivative financial liabilities The following liquidity risk disclosures reflect all contractually fixed pay-offs, repayments and interest resulting from the recognised financial liabilities and financial guarantees as of 30 September 2017. For the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract. However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which we can be required to pay. When Elders is committed to make amounts available in instalments, each instalment is allocated to the earliest period in which we are required to pay. For financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee can be called. The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows of non-derivative financial instruments.
Carrying Contractual 6 months amount cash flows or less 6-12 months 1-5 years $000 $000 $000 $000 $000 2017 Non derivative financial assets: Cash and cash equivalents 35,186 35,186 35,186 - - Trade and other receivables 392,299 392,299 392,299 - - 427,485 427,485 427,485 - - Non derivative financial liabilities: Interest bearing loans and borrowings (130,162) (130,162) (130,162) - - Trade and other payables (357,539) (357,539) (354,390) (1,149) (2,000) Financial guarantees - (5,207) (5,207) - - (487,701) (492,908) (489,759) (1,149) (2,000) Net inflow/(outflow) (60,216) (65,423) (62,274) (1,149) (2,000)
2016 Non derivative financial assets: Cash and cash equivalents 35,151 35,151 35,151 - - Trade and other receivables 385,815 385,815 385,815 - - 420,966 420,966 420,966 - - Non derivative financial liabilities: Interest bearing loans and borrowings (121,300) (121,319) (121,319) - - Trade and other payables (331,565) (331,565) (331,565) - - Financial guarantees - (1,364) (1,364) - - (452,865) (454,248) (454,248) - - Net inflow/(outflow) (31,899) (33,282) (33,282) - -
114 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 31 — Financial Instruments (ii) Derivative financial instruments Due to the unique characteristics and inherent risks to derivative instruments, Elders separately monitors liquidity risk arising from transacting in derivative instruments. The following table details the liquidity risk arising from derivative financial assets and liabilities held by Elders at balance date. Net settled derivatives comprise forward exchange and interest rate hedges, which are recognised within receivables on the statement of financial position.
Carrying Contractual 6 months amount cash flows or less 6-12 months 1-5 years $000 $000 $000 $000 $000 2017 Derivative assets – net settled 83 83 83 - - Total inflow/(outflow) 83 83 83 - -
2016 Derivative assets – net settled 98 98 98 - - Total inflow/(outflow) 98 98 98 - - (c) Credit risk Credit risk arises from Elders’ financial assets, which comprise cash and cash equivalents, trade and other receivables, and derivative instruments. Elders’ exposures to credit risk arise from potential default of the counterparty, with the maximum exposure equal to the carrying amount of the financial assets. The ageing of trade and other receivables at balance date is reported at note 6. The credit risk associated with cash and derivatives is located primarily in Australia. Elders minimises concentrations of credit risk by undertaking transactions with a large number of debtors in various locations. The credit risk amounts do not take into account the value of any collateral or security. The creditworthiness of counterparties is regularly monitored and subject to defined credit policies, procedures, limits and insurance positions. The amounts disclosed do not reflect expected losses and are shown gross of provisions. The maximum exposure to credit risk at the reporting date was:
2017 2016 $000 $000 Cash and cash equivalents 35,186 35,151 Trade and other receivables 392,216 385,717 Derivative financial assets 83 98 427,485 420,966 Location of credit risk Australia 420,699 409,986 Asia 6,786 10,980 Total 427,485 420,966
115 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 31 — Financial Instruments (d) Foreign currency risk Elders is exposed to movements in the exchange rates of a number of currencies. These are primarily generated from the following activities: ——Purchase and sale contracts written in foreign currency; ——Receivables and payables denominated in foreign currencies; ——Commodity cash prices that are partially determined by movements in exchange rates; and ——Costs of sale such as transportation and commission denominated in foreign currency. Foreign exchange risk is managed within Board approved limits using forward foreign exchange and foreign currency contracts. Where possible, exposures are netted off against each other to minimise the cost of hedging. Hedge accounting is not applied, with foreign currency contracts fair valued at balance date with gains and losses recognised immediately through the statement of comprehensive income. At 30 September 2017, Elders had the following AUD exposures to foreign currencies that were not designated in cash flow hedges:
2017 2016 $000 $000 Financial assets Cash and cash equivalents – CNY 945 706 Cash and cash equivalents – IDR 1,136 2,286 Cash and cash equivalents – other 82 1,517 Receivables – CNY 2,428 3,839 Receivables – IDR 2,141 4,055 Receivables – other 136 9,136 6,868 21,539 Financial liabilities Payables – CNY (556) (247) Payables – IDR (3,095) (1,485) Interest bearing loans and borrowings – CNY (320) - Interest bearing loans and borrowings – other - (8,996) (3,971) (10,728) Net exposure 2,897 10,811
Given the foreign currency balances included in the Statement of Financial Position at balance date, if the Australian dollar at that date strengthened by 10% with all other variables held constant, then the impact on post tax profit/(loss) arising on the balance sheet exposure would be as follows:
Post Tax Profit/equity — Higher/(Lower) 2017 2016 $000 $000 CNY (250) (430) IDR (18) (486) Other (22) (166) A 10% weakening of the Australian dollar against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables are held constant.
116 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 31 — Financial Instruments (e) Fair value of financial assets and liabilities Elders use various methods in estimating the fair value of a financial instrument. The methods comprise: ——Level 1 – the fair value is calculated using quoted prices in active markets. ——Level 2 – the fair value is estimated using inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). ——Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. All forward exchange derivative contracts were measured at fair value using the level 2 method. Fair value of derivative instruments approximates the carrying value. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Any gains or losses arising from changes in fair value of derivatives are taken directly to profit and loss, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income. The fair value of financial instruments as well as the method used to estimate the fair values are summarised in the table below:
2017 2016 Valuation Valuation technique Valuation Valuation technique Quoted technique – market – non market Quoted technique – market – non market market price observable inputs observable inputs market price observable inputs observable inputs (Level 1) (Level 2) (Level 3) (Level 1) (Level 2) (Level 3) $000 $000 $000 $000 $000 $000 Financial assets Derivatives - 83 - - 98 - - 83 - - 98 -
Note 32 — Business Combinations – Changes in the Composition of the Entity (a) Acquisitions During the current period, Elders acquired a real estate and retail business for a total consideration net of cash acquired of $16.0 million. These transactions resulted in the recognition of $7.2 million of goodwill. These acquisitions are not material to the group.
Prior period acquisitions In the prior period, Elders acquired various real estate and retail businesses for a total consideration net of cash acquired of $3.7 million. These transactions resulted in the recognition of $2.1 million of goodwill. (b) Disposals During the current period, Elders exited the live export business and disposed the net assets of the business. The proceeds from disposal were $2.7 million which resulted in a gain on sale of $1.9 million. There were no disposals in the prior period.
117 2017 Annual Report — Elders NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 33 — Discontinued Operations Elders’ investment in Live Export was sold during the period and has been classified as a discontinued operation.
2017 2016 Cont Disc Total Cont Disc Total $000 $000 $000 $000 $000 $000 Sales revenue 1,603,137 99,002 1,702,139 1,519,336 222,582 1,741,918 Cost of sales (1,269,080) (95,690) (1,364,770) (1,211,970) (225,393) (1,437,363) Gross profit 334,057 3,312 337,369 307,366 (2,811) 304,555 Other revenues 5,411 - 5,411 861 58 919 Distribution expenses (221,846) (1,943) (223,789) (213,142) (6,105) (219,247) Administration expenses (47,186) - (47,186) (38,954) - (38,954) Other items of income/(expense) 55,001 4,538 59,539 (1,226) (6,048) (7,274) Profit/(loss) before borrowing costs and tax expense 124,437 5,907 131,344 54,905 (14,906) 39,999 Finance costs (7,265) (265) (7,530) (9,343) (417) (9,760) Profit/(loss) before tax expense 118,172 5,642 123,814 45,562 (15,323) 30,239 Income tax benefit/(expense) (4,137) (1,106) (5,243) 19,403 4,597 24,000 Net profit/(loss) for year 114,035 4,536 118,571 64,965 (10,726) 54,239 Net profit/(loss) attributable to non- controlling interest (2,576) - (2,576) (2,670) - (2,670) Net profit/(loss) attributable to members of the parent entity 111,459 4,536 115,995 62,295 (10,726) 51,569
Revenue and expenses Sales revenue: Sale of goods and biological assets 1,267,412 99,002 1,366,414 1,166,490 222,582 1,389,072 Debtor interest associated with sales 5,579 - 5,579 5,044 - 5,044 Commission and other selling charges 330,146 - 330,146 347,802 - 347,802 1,603,137 99,002 1,702,139 1,519,336 222,582 1,741,918 Other expenses: Insurance fair value adjustment 2,270 - 2,270 - - - Gain on divested assets - 1,955 1,955 - - - Live export exit costs - 2,583 2,583 - (6,048) (6,048) Impairment reversal/(impairment) of assets 54,785 - 54,785 (1,049) - (1,049) Restructuring, redundancy and other (2,054) - (2,054) (177) - (177) 55,001 4,538 59,539 (1,226) (6,048) (7,274)
The net cash flow of the discontinued operations is as follows:
2017 2016 $000 $000 Operating activities 14,494 1,254 Investing activities 2,696 - Financing activities - - Net cash inflow/(outflow) 17,190 1,254
118 Annual Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 September 2017
Note 34 — Parent Entity Information relating to the parent entity of the Group, Elders Limited:
2017 2016 $000 $000 Results: Net profit/(loss) for the period after income tax expense 69,096 (25,527) Total comprehensive income/(loss) 69,096 (25,527)
Financial position: Current assets 108 314 Non current assets 258,395 187,886 Total assets 258,503 188,200 Current liabilities 825 1,696 Total liabilities 825 1,696 Net assets 257,678 186,504
Issued capital 1,422,255 1,422,382 Hybrid equity - 145,151 Retained earnings (1,208,493) (1,382,740) Profit reserve 40,000 - Employee equity reserve 3,916 1,711 Total equity 257,678 186,504
Guarantees As disclosed in note 26, the parent entity has entered into a Deed of Cross Guarantee with certain controlled entities. The effect of this Deed is that Elders Limited and each of these controlled entities has guaranteed to pay any deficiency of any of the companies party to the Deed in the event of any of those companies being wound up. The parent entity is a party to various guarantees and indemnities pursuant to bank facilities and operating lease facilities extended to the Group as disclosed in notes 22 and 23.
Note 35 — Subsequent Events There are no other matters or circumstances that have arisen since 30 September 2017 which is not otherwise dealt with in this report or in the consolidated financial statements, that has significantly affected or may significantly affect the operations of Elders, the results of those operations or the state of affairs of Elders in subsequent financial periods.
119 2017 Annual Report — Elders
Directors’ Declaration
In accordance with a resolution of the Directors of Elders Limited, the Directors declare: 1. In the opinion of the Directors: (a) the financial statements and notes of Elders Limited for the financial year ended 30 September 2017 are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of its financial position as at 30 September 2017 and of its performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2(b) (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the year ended 30 September 2017. 3. In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 26 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the deed of cross guarantee.
On behalf of the Board
J H Ranck M C Allison Chairman Managing Director
Adelaide 13 November 2017
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Independent auditor’s report To the members of Elders Limited
Report on the audit of the financial report
Our opinion In our opinion: The accompanying financial report of Elders Limited (the Company) and its controlled entities (together Elders or the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 September 2017 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: • the consolidated statement of financial position as at 30 September 2017 • the consolidated statement of comprehensive income for the year then ended • the consolidated statement of cash flows for the year then ended • the consolidated statement of changes in equity for the year then ended • the notes to the consolidated financial statements, which include a summary of significant accounting policies • the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757 Level 11, 70 Franklin Street, ADELAIDE SA 5000, GPO Box 418, ADELAIDE SA 5001 T: +61 8 8218 7000, F: +61 8 8218 7999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.
Elders operates branches throughout Australia and works with primary producers to provide: • Retail products: Rural farm inputs including seeds, fertilisers, agricultural chemicals, animal health products and general rural merchandise. • Agency services: A range of marketing options for livestock, wool and grain. • Real estate services: Agency services primarily involved in the marketing of farms, stations and lifestyle estates and includes a network of residential real estate agencies providing agency and property management services. • Financial services: Elders distributes a wide range of banking, funding, insurance and financial planning products.
Elders provides feed and processing services both domestically and internationally. In Australia, Elders operates the Killara feedlot, a beef cattle feedlot near Tamworth in New South Wales. In Indonesia, the Group operates an integrated feedlot, abattoir and meat distribution business. Elders has a business in China which imports, processes and distributes premium Australian meat in China.
Materiality
For the purpose of our audit we used overall materiality of $3.1 million, which represents approximately 5% of the Group’s profit before tax excluding impairment reversals, amounts associated with the disposal of Live Export and acquisition related fair value gains.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.
We chose to use the Group’s profit before tax because, in our view, it is the benchmark against which the
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performance of the Group is most commonly measured. We adjusted the Group’s profit before tax for impairment reversals, amounts associated with the disposal of Live Export and acquisition related fair value gains as they are unusual or infrequently occurring items which are not expected to recur from year to year or otherwise significantly affect the underlying trend of performance of the Group.
We used a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable benchmarks.
Audit scope Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.
We decided the nature, timing and extent of work that needed to be performed by us and component auditors operating under our instruction.
The Group is comprised of three components being Australia, Indonesia and China.
We audited the Australian component financial information given its financial significance. To perform our audit procedures we attended head office, the Killara feedlot and a sample of branches across the Australian network.
The components in Indonesia and China did not contribute materially to the Group profit before tax. We did however perform specified risk focussed audit procedures over certain balances in each of these components. These procedures were performed by us with the exception of work performed by component auditors in Indonesia over the existence of livestock. For the procedures performed by component auditors in Indonesia, we decided on the level of involvement required from us to be able to conclude whether sufficient and appropriate audit evidence had been obtained. Our involvement included discussions and written instructions and reporting from component auditors.
We performed further audit procedures at a Group level, including over the consolidation of the Group’s reporting units and the preparation of the financial and remuneration reports.
Key audit matters Amongst other relevant topics, we communicated the following key audit matters to the Audit, Risk and Compliance Committee:
• Reversal of the Brand Name impairment • Recoverability of deferred tax assets • Accounting for rebates
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Any commentary on the outcomes of a particular audit procedure is made in that context.
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Key audit matter How our audit addressed the key audit matter
Reversal of the Brand Name impairment We considered the Group’s reassessment of the carrying value (Refer to notes 2(r)(i) and 12) of the Brand Name and its conclusion to recognise an impairment reversal and performed the following procedures, In the financial year ended 30 September 2013, Elders amongst others: impaired the Brand Name asset from $60.4 million to $5.6 million, largely as a result of a reduction in expected future • Compared the cash flow forecasts in the model to those in cash flows and an increased allocation of corporate costs to the the latest Board approved budgets, particularly inputs for business following a Group reorganisation. growth rate and working capital movements.
The carrying value of the Brand Name is reviewed annually by • Evaluated Elders’ ability to forecast future results within Elders using a value in use model (‘the model’). impairment models by comparing budgets with reported actual results for the previous financial year. In the current year, the Group assessed that the sustained positive results and removal of profit and loss volatility given • Tested the mathematical accuracy of the model, and the exit from Live Export provide objective evidence that the assessed the completeness of cash flows included within conditions leading to the asset impairment were no longer the model based on our understanding of operations present and were an indicator that the Group should consider from the audit. a reversal of the impairment. Given the above factors and the model supported a Brand Name recoverable amount of $60.4 • Evaluated the appropriateness of the discount rate by million, an impairment reversal of $54.8 million has been assessing the reasonableness of the relevant inputs to the recognised in the consolidated statement of comprehensive calculation against industry and market factors. We income. performed a sensitivity analysis of the discount rate by varying critical inputs including the risk free rate, equity The reversal of the Brand Name impairment was a key audit risk market premium and pre-tax cost of debt in the matter given the financial significance of the reversal and the weighted average cost of capital calculation. judgemental assumptions included in the model, particularly the future cash flows, growth rate and discount rate. • Evaluated the accuracy and adequacy of the disclosures made in the financial report, including those regarding the key assumptions in light of the requirements of Australian Accounting Standards.
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Key audit matter How our audit addressed the key audit matter
Recoverability of deferred tax assets We performed the following procedures, amongst others: (Refer to notes 2(y) and 5) • Assessed the forecast profits over the relevant utilisation Elders disclosed unused tax losses of $228.2 million available period and evaluated whether the forecasts were for use in future periods. consistent with Board approved budgets, and had been appropriately adjusted for the differences between Elders recognised net deferred tax assets of $59.4 million at accounting profits and taxable profits. 30 September 2017 in the consolidated statement of financial position, of which $57.4 million arises from tax losses carried • With assistance from PwC tax experts, examined the forward. ability to carry forward the tax losses for future use and considered the appropriateness of the deductions in the Australian Accounting Standards require deferred tax assets to forecasts. be recognised only to the extent that it is probable that sufficient future taxable profits will be generated in order for • Tested the mathematical accuracy of the forecasts. the benefits of the deferred tax assets to be realised. These benefits are realised by reducing tax payable on future taxable • Performed a reconciliation of tax losses recognised and profits. utilised in the consolidated statement of financial position and note 5. This was a key audit matter due to the quantum of the accumulated losses available as well as the judgement involved • Recalculated deferred tax asset balances which comprise by the Group in preparing forecasts to demonstrate the future a combination of timing differences between tax and utilisation of these losses. accounting values and tax losses.
• Evaluated the adequacy of the disclosures made in light of the requirements of Australian Accounting Standards.
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Key audit matter How our audit addressed the key audit matter
Accounting for rebates We performed the following procedures, amongst others: (Refer to notes 2(i) and 3) • For a sample of rebates recognised as a reduction in cost Elders receives rebates in connection with the purchase of of sales, we: retail goods for resale from suppliers. These rebates are varied in nature and include price and volume rebates. − agreed terms and conditions back to individual supplier agreements and recalculated the amount of Elders recognises the rebates as a reduction to the cost of the rebate; and inventory purchased and a reduction in cost of sales when the inventory is sold. − considered if the rebate amount was only recognised as a reduction in cost of sales when a sale of relevant In accordance with Australian Accounting Standards, rebates product had occurred. should only be recognised as a reduction in cost of sales when the associated performance conditions have been met. This • We assessed the completeness of rebates being recorded requires a detailed understanding by the Group of the various against inventory on hand at balance date by obtaining a contractual arrangements. listing of stock on hand at balance date. For a sample of stock items, we traced the rebate percentage back to We considered rebates to be a key audit matter because: supplier agreements and recalculated the rebate amount offset against inventory. • Supplier arrangements are complex in nature and vary between suppliers. • For a sample of rebates receivable at balance date, we confirmed these directly with suppliers. • This is a largely manual process. • Evaluated the adequacy of the disclosures made in light • Judgement is involved by the Group to determine the of the requirements of Australian Accounting Standards. amount of rebates that should be recognised in the consolidated statement of comprehensive income and the amounts that should be deferred to inventory.
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Other information The directors are responsible for the other information. The other information comprises the Chairman's Remarks, CEO's Report, Year in Brief, A Year of Progress, Elders Gives Back, Operating and Financial Review, Material Business Risks, Review of Operations, Outlook, Digital and Technical Services Snapshot, Elders Expands National Footprint, Board of Directors, Executive Management Remarks, Women in Pink, Directors' Report, Shareholder Information and Company Directory included in the Group’s annual report for the year ended 30 September 2017 but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report.
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Report on the remuneration report
Our opinion on the remuneration report We have audited the remuneration report included in pages 61 to 77 of the directors’ report for the year ended 30 September 2017.
In our opinion, the remuneration report of Elders Limited for the year ended 30 September 2017 complies with section 300A of the Corporations Act 2001.
Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.
PricewaterhouseCoopers
A G Forman Adelaide Partner 13 November 2017
128 ASX Additional Information
ASX Additional Information
(a) Distribution of Ordinary Shares as at 31 October 2017 No. of Ordinary Shares No. of Ordinary Holders 1 – 1,000 3,132,472 7,487 1,001 – 5,000 10,695,404 4,560 5,001 – 10,000 6,359,251 867 10,001 – 100,000 17,548,809 728 100,001 – maximum 76,123,504 52 Total 113,859,440 13,694 The number of holders holding less than a marketable parcel 1,210
(b) Voting rights All ordinary shares carry one vote per share without restriction.
(c) Stock Exchange quotation Elders has one class of quoted securities being the ordinary shares (ELD) which is listed on the Australian Securities Exchange. The Home Exchange is Sydney.
(d) Twenty Largest Shareholders as at 31 October 2017 The twenty largest holders of Elders Ordinary Shares were as follows: No. of Shares % of Shares J P MORGAN NOMINEES AUSTRALIA LIMITED 18,175,334 15.963% HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 16,336,138 14.348% CITICORP NOMINEES PTY LIMITED 13,456,831 11.819% BNP PARIBAS NOMINEES PTY LTD
(e) The number of shares held by the substantial shareholder listed on the Company’s register of substantial shareholders as at 31 October 2017 is:
Shareholder No. of Shares % of Shares Schroder Investment Management Australia Limited 7,089,982 6.23%
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Shareholder Information
Share Registry Boardroom Pty Limited Level 12, 225 George Street, Sydney, NSW, 2001 Telephone: 1300 737 760 Facsimile: +61 (0)2 9279 0664 Email: [email protected] Website: boardroomlimited.com.au Enquiries Shareholders with enquiries about their shareholdings should contact the Company’s share registry, Boardroom, on the above contact details. Online shareholder Shareholders can obtain information about their holdings or view their account information instructions online. For identification and security purposes, you will need to know your Reference Number (HIN/SRN), Surname/Company Name and Post/Country Code to access. This service is accessible via the Investor Centre on the Company’s website or direct via the Boardroom website at investorserve.com.au. Tax and dividend/interest Elders is obliged to deduct tax from dividend/interest payments (which are not payments fully franked) to holders registered in Australia who have not quoted their Tax File Number (TFN) to the Company. Shareholders who have not already quoted their TFN can do so by contacting Boardroom. Change of address Issuer Sponsored Shareholders who have changed their address should advise Boardroom in writing. Written notification can be emailed, posted or faxed to Boardroom at the address given above and must include both old and new addresses and the Securityholder Reference Number (SRN) of the holding. Alternatively, holders can amend their details on-line via Boardroom’s website. Shareholders who have broker sponsored holdings should contact their broker to update these details. Annual Report mailing list Shareholders who wish to vary their annual report mailing arrangements should advise Boardroom online or in writing. Electronic versions of the report are available to all via the Company’s website. Annual Reports will be mailed to all shareholders who have elected to be placed on the mailing list for this document. Investor information Information about the Company is available from a number of sources: Website: elders.com.au Subscribe: Shareholders can nominate to receive company information electronically via the Investor Centre on the Company’s website. This service is also hosted by Boardroom and holders can register through InvestorServe on Boardroom’s website. Publications: The annual report is the major printed source of company information. Other publications include the Half-yearly report, company press releases, presentations and Investor Presentations. All publications can be obtained either through the Company’s website or by contacting the Company.
130 Company Directory
Company Directory
Directors Mr James H Ranck — BS Econ, FAICD, Chairman Mr Mark C Allison — BAgrSc, BEcon, GDM, FAICD Mr James A Jackson — B Com, FAICD Mr Ian Wilton — FCCA, FCPA, FAICD, CA Ms Robyn Clubb — BEc, CA, F Fin, MAICD Secretaries Mr Peter G Hastings — BA, LLB, GDLP, FGIA Ms Sanjeeta Singh — BEd (Primary), FGIA Registered Office Level 10, 80 Grenfell Street Adelaide, South Australia, 5000 Telephone: (08) 8425 4000 Facsimile: (08) 8410 1597 Email: [email protected] Website: elders.com.au Share Registry Boardroom Pty Limited Level 12, 225 George Street Sydney, NSW, 2001 Telephone: 1300 737 760 Facsimile: +61 (0)2 9279 0664 Website: boardroomlimited.com.au Auditor PricewaterhouseCoopers Bankers Australia & New Zealand Banking Group National Australia Bank Coöperative Centrale Raiffeisen – Boerenleenbank (Rabobank Australia) Stock Exchange Listing Elders Limited ordinary shares are listed on the Australian Securities Exchange under the ticker code “ELD”
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